Asia Quarterly ― Q1-Q2 2020: Blindsided ―
9th April 2020 Mizuho Bank, Ltd.
Asia and Oceania Treasury Department
Vishnu Varathan
Head, Economics & Strategy
Lavanya Venkateswaran
Market Economist
Zhu Huani
Market Economist
A weary global economy just beginning to heave a sigh of relief from US-China trade
conflict de-escalation (“Phase-1” deal) has been blindsided by the COVID-19 pandemic.
Unprecedented in every way, global policy-makers do not have the luxury of pulling punches
with – often having to swing blindly at –this invisible, and little understood adversary that has
hijacked economic activity and upended social interactions/norms as we know it.
Attacking in waves, the economic side-effects are grim. The social distancing that is required to
control an unmitigated spread, and resultant seizure in activity inflicts a jarring revenue shock
to businesses; impacting adversely from both the supply- and demand-side.
The challenge for policy-makers all over is to short-circuit the nefarious (liquidity-credit)
spiral from a liquidity/cash-flow seizure (from revenue shocks) to a credit crunch that
cascades into a solvency crisis; and eventually job losses, which is far harder to reverse.
The deluge of liquidity/credit facilities, complementing steep rate cuts, alongside
unprecedented fiscal bazookas enhance policy transmission. But may still fall short of
preventing a global recession. The hope is that policy efforts will help blunt the depth and
duration of the recession. But for now we fly blind.
Asia Quarterly – Q1/Q2 2020
- 1 -
Executive Summary
US: The “corona-crisis” (COVID-19 pandemic) blindsided, triggering
unprecedented largesse to mitigate recession risks. Fiscal stimulus north of 10% of
GDP, ZIRP, “QE infinity” and liquidity/credit kitchen sink are all fair game.
EZ: Fears of a deep recession in Europe has tamed German fiscal hawks and ramped
up ECB stimulus led by QE (APP, PEPP); with self-imposed country limits discarded.
Japan: The pandemic has postponed Tokyo Olympics to summer 2021, and jolted
the Abe government into a 20% of GDP fiscal fillip along with expanded QQE. .
China: With Wuhan as the epi-centre, a brutal seizure in economic activity started
in China, and may result in an unprecedented economic contraction in H1; but with
China pulling all stops, scope for a turnaround later in 2020 remains.
To be clear, even as China resumes activity in Q2, Europe and US locking down
will inevitably frustrate any chance of (even a fleeting) V-shaped recovery. Most
worrying are being blindsided by of second-round infections.
India’s initial relief of being spared infection has proven illusory. Containing the
spread while the correct policy priority will extract an economic toll, exacerbating pre-
existing economic pain associated with banking impediments and confidence shortfall.
Indonesia’s adoption of unprecedented fiscal measures along with monetary
policy support is justified by the scale of the COVID-19 outbreak.
Weakness in South Korea’s domestic sector is inevitable despite the absence of
country-wide lockdown. Challenging external environment on top of slowing
domestic demand due to lockdowns is set to drag Vietnam’s growth to a multi-
year low.
Singapore: 12% of GDP fiscal boost will relieve pain but not prevent a downturn
as travel, supply-chain, financial channels conspire. Malaysia’s economy will be
hit by the triple blow of the pandemic, volatile commodity prices and political
uncertainty.
Growth in Thailand is dragged down by sharp slowdown in tourism activities and
tepid domestic demand due to restrictive lockdown measures. Philippines’ pain
will be exacerbated by the lockdown of the Luzon island.
Australia: The RBA pulling all stops with YCC should help cushion the economic
slide. But commodity- and China channels will tend to amplify shocks; and a
weak AUD may have somewhat diminished efficacy as a shock absorber.
AXJ: Despite rock bottom UST yields and unrestrained QE, a weak USD is not a
given. Risk aversion will tend to keep FX markets volatile, amid a tendency for
capital outflows and AXJ slippage; as USD remains the ultimate refuge.
Asia Quarterly – Q1/Q2 2020
- 2 -
AT A GLANCE
Yearly Economic Forecasts
GDP YoY CPI C/A (% GDP) GDP YoY CPI C/A (% GDP) GDP YoY CPI C/A (% GDP) GDP YoY CPI C/A (% GDP)
United States 2.9 2.5 -2.4 2.3 1.8 -2.3 -1.2 1.1 -2.6 2.2 2.1 -2.5
Eurozone 1.9 1.8 3.1 1.2 1.1 2.7 -3.3 0.4 2.8 1.9 1.5 3.0
Japan 0.3 1.0 3.5 0.7 0.5 3.4 -1.4 0.3 3.6 1.4 0.6 3.1
ASIA (ex-Japan) 6.2 2.6 0.4 4.2 1.9 1.2 1.6 1.3 1.9 4.3 2.1 2.1
ASEAN-6 5.1 2.7 1.4 4.5 2.0 1.8 1.3 2.1 1.2 4.7 2.4 1.4
China 6.6 2.1 0.2 6.2 2.9 1.2 2.4 1.6 2.6 6.3 2.9 2.1
India 7.3 3.9 -2.4 5.3 (4.7) 3.7 (4.7) -0.9 3.2 (3.4) 3.6 (2.6) -0.6 5.4 (5.7) 3.5 (3.7) 1.4
Korea 2.7 1.6 4.7 2.0 0.4 3.0 0.7 0.9 3.4 2.9 1.3 3.6
Singapore 3.2 0.4 17.2 0.7 0.5 17.0 -2.8 -0.9 18.8 3.9 1.3 17.6
Malaysia 4.7 1.0 2.1 4.3 0.7 3.3 0.7 1.3 1.8 4.1 1.5 3.4
Indonesia 5.2 3.2 -2.9 5.0 2.8 -2.7 2.0 2.9 -2.9 4.7 3.0 -2.5
Thailand 4.1 1.1 7.4 2.4 0.7 6.8 -1.3 0.1 4.3 3.5 1.1 5.5
Philippines 6.2 5.2 -2.7 5.9 2.5 -0.1 2.5 2.4 1.4 6.0 3.0 -1.1
Vietnam 7.1 3.8 2.9 7.0 2.8 3.0 4.2 4.7 1.7 6.9 3.4 2.5
Australia 2.8 1.9 -2.1 1.7 1.6 0.7 0.7 0.8 0.4 2.4 1.9 -1.1
Note: Asia (ex Japan) includes China, India, South Korea, Singapore, Hong Kong, Taiwan, Malaysia, Indonesia, Thailand, Philippines, Vietnam
The forecasts in this table do not account for severe trade protectionism outcomes.
2018 2019 20212020Country
Quarterly Outlook – Growth and Consumer Inflation
Growth Forecasts GDP Growth Forecasts
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
China -4.2 2.1 4.0 6.2 11.2 6.8 5.5 3.4 6.2 2.4 6.3
India 3.7 2.3 2.8 3.8 4.6 6.0 6.0 5.7 5.3 (4.9) 3.2 (3.4) 5.4 (5.7)
Korea 0.3 0.1 1.0 1.2 3.1 3.1 2.7 2.7 2.0 0.7 2.9
Singapore -2.2 -5.7 -3.9 0.8 3.4 7.1 4.1 1.2 0.7 -2.8 3.9
Malaysia 0.3 -0.4 1.2 1.6 3.9 4.2 4.3 4.3 4.3 0.7 4.1
Indonesia 3.9 1.0 1.5 1.6 3.3 4.9 5.0 5.5 5.0 2.0 4.7
Thailand -2.7 -4.0 0.3 1.3 3.3 4.2 3.3 3.0 2.4 -1.3 3.5
Philippines 3.8 0.7 1.5 4.1 5.6 6.9 6.3 5.4 5.9 2.5 6.0
Vietnam 3.8 3.0 4.4 5.5 7.1 7.0 6.7 6.6 7.0 4.2 6.9
Australia 0.9 -1.2 1.4 1.8 2.4 3.2 1.9 2.1 1.7 0.7 2.4
2021 2019
(FY19/20)
2020
(FY20/21)
2021
(FY21/22)Country
2020
Consumer Inflation forecasts Inflation Forecast
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
China 1.8 2.6 2.9 4.3 3.9 1.3 1.1 0.3 1.0 3.4 3.5 3.5 2.9 1.6 2.9
India 2.5 3.1 3.5 5.8 6.5 2.7 3.0 2.5 2.4 4.3 3.8 3.6 3.7 (4.7) 3.6 (2.6) 3.5 (3.7)
Korea 0.5 0.7 0.0 0.3 1.2 0.6 0.9 1.0 1.0 1.4 1.3 1.5 0.4 0.9 1.3
Singapore 0.5 0.7 0.4 0.6 0.1 -1.7 -1.2 -0.7 0.2 1.8 1.8 1.4 0.5 -0.9 1.3
Malaysia -0.3 0.6 1.3 1.0 1.5 1.4 1.2 1.2 1.5 1.5 1.5 1.7 0.7 1.3 1.5
Indonesia 2.7 2.9 3.0 2.7 2.9 3.0 2.8 2.8 2.9 3.0 3.1 3.1 2.8 2.9 3.0
Thailand 0.7 1.1 0.6 0.4 0.4 -0.6 0.1 0.5 0.9 1.6 1.1 0.9 0.7 0.1 1.1
Philippines 3.8 3.0 1.7 1.5 2.7 2.1 2.3 2.6 2.8 2.9 3.1 3.1 2.5 2.4 3.0
Vietnam 2.6 2.7 2.2 3.7 5.6 5.0 4.7 3.5 2.8 3.2 3.4 4.0 2.8 4.7 3.4
Australia 1.3 1.6 1.7 1.8 0.6 0.4 1.0 1.2 1.6 1.8 1.9 2.1 1.6 0.8 1.9
2021
(FY21/22)
2019 2019
(FY19/20)Country
2020 2020
(FY20/21)
2021
Asia Quarterly – Q1/Q2 2020
- 3 -
Central Bank Policy Outlook Central Bank Policy Outlook
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
US Fed 1.50-1.75% 0.00-0.25% 0.00-0.25% 0.00-0.25% 0.00-0.25% 0.00-0.25% 0.00-0.25% 0.00-0.25% 0.00-0.25%
4.35% 4.35%
-- 4.05% 3.80% 3.65% 3.60% 3.60% 3.60% 3.60% 3.60%
India RBI 5.15% 4.40% 3.90% 3.90% 3.90% 3.90% 3.90% 4.15% 4.15%
Korea BoK 1.25% 0.75% 0.50% 0.50% 0.50% 0.50% 0.50% 0.75% 0.75%
Singapore MAS*
Slightly reduce
S$NEER slope (~0.5%
pa)
Malaysia BNM 3.00% 2.50% 2.00% 1.75% 1.75% 1.75% 1.75% 1.75% 1.75%
Indonesia BI^ 5.00% 4.50% 3.75% 3.25% 3.25% 3.25% 3.25% 3.25% 3.25%
Thailand BoT 1.25% 0.75% 0.50% 0.50% 0.50% 0.50% 0.50% 0.75% 0.75%
Philippines BSP** 4.00% 3.25% 2.50% 2.50% 2.50% 2.50% 2.50% 2.50% 2.50%
Vietnam SBV 6.00% 5.00% 4.50% 4.50% 4.50% 4.50% 4.50% 5.00% 5.50%
Australia RBA 0.75% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Central
BankEnd 2019
Status Quo
China
20212020
"Slightly Steepen" (~0.5%
per annum)
PBoC
Country
^ PBoC instituted the loan prime rate (LPR), which sets a floor on commercial interest rates. This replaces the 1-yr Lending rate
* The MAS conducts monetary policy via FX. Specifically it adopts a trade-weighted SGD appreciation at "modest and gradual" (estimated to be 2% per
BI shifted to the 7 Day repurchase rate as the benchmark rate in August 2016. This by default constituted 125 bps reduction from the last policy rate
** BSP instituted an interest rate corridor policy in June 2016. The new effective policy rate is the overnight reverse repurchase rate.
Flatten S$NEER & Re-
Centre to Prevailing
S$NEER (~40-70bps lower) Status Quo
FX Outlook .
Jun 20 Sep 20 Dec 20 Mar 21 Jun 21
USD/JPY 106 105 104 103 102
EUR/USD 1.12 1.13 1.14 1.14 1.15
USD/CNY 7.06 6.98 7.04 6.96 6.88
USD/INR 74.2 73.2 73.8 72.2 71.0
USD/KRW 1210 1190 1200 1170 1160
USD/SGD 1.40 1.38 1.40 1.38 1.37
USD/IDR 16250 16100 16200 16100 16000
USD/MYR 4.30 4.28 4.34 4.30 4.25
USD/PHP 50.5 50.2 51.0 50.7 50.5
USD/THB 32.5 31.8 32.0 31.6 31.2
USD/VND 23360 23200 23300 23200 23160
AUD/USD 0.63 0.67 0.64 0.67 0.69
Market Watch
-40
-35
-30
-25
-20
-15
-10
-5
0Equities YTD Returns (%)
YTD (% in USD) YTD (% in lcl ccy)*As of 7 Apr 20
-10
0
10
20
30
40
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1M 1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10Y
bp
s
% US Treasury Yield Curve
Forward rate changes (RHS) Treasury Yields
Forward 1Y Rates (implied)
-16
-14
-12
-10
-8
-6
-4
-2
0
2FX YTD returns (%)
YTD spot w/ carry (%) YTD spot (%)*As of 7 Apr 20 Sources: Refinitiv, Mizuho Bank
-150-125-100
-75-50-25
0255075
100125
10Y Yield YTD Changes (bps)
Change bps (10y)*As of 7 Apr 20
Asia Quarterly – Q1/Q2 2020
- 4 -
Table of Contents 1. Global Overview --------------------------------------------
5
Blindsided
2. Asia Outlook -------------------------------------------------
7
Dismal
3. China --------------------------------------------------------
8
Epi-Centres & After-Shocks
4. India ---------------------------------------------------------
10
Unwell Even Before the Virus
5. South Korea-------------------------------------------------- 12
Challenging external environment
6. Singapore ---------------------------------------------------
14
3D-Recession
7. Malaysia -----------------------------------------------------
16
Pandemic, poor commodity prices and political pressures
8. Indonesia ----------------------------------------------------
18
Bracing for impact from the COVID-19 outbreak
9. Thailand -----------------------------------------------------
20
Hard-hit tourism drags growth into contraction
10. Philippines ---------------------------------------------------
22
Lockdown to knock down growth
11. Vietnam -----------------------------------------------------
24
Growth may slow to sub-5%
12. Australia ----------------------------------------------------- 26
Compromised
Asia Quarterly – Q1/Q2 2020
- 5 -
Global Overview: Blind-sided
Growth: Blindsided by the “corona crisis”, a global
recession is all but guaranteed. COVID-19 outbreak
erupting into a full-blown global pandemic threatens
unprecedented “revenue shocks”. Urgent attempts to
“flatten the curve” (travel bans, lockdowns, social
distancing etc.) so as not to overwhelm strained hospital
capacity are vital; but entail exorbitant economic cost.
Revenue shocks exacerbated by supply-chain disruptions
risk a credit crisis; feeding into, and off, financial market
shocks. All of which are set to come in waves as dictated
by COVID-19 proliferation. Enter oil shock, and global
activity/capex are rendered even more dismal. And any
recovery in late-2020 will likely be fragile and drawn out.
0
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-20
US Weekly Jobless Claims Spike to an Unpercedented 6.65mn vs. 2016-2019 average of
236K!
Risks: The most obvious risk is associated with lagged
response in in some countries blinded by false choices
between containment and growth disproportionately
deepen and prolong the waves of epidemic impact, and
consequent economic pain and societal suffering.
Second, despite unparalleled policy backstop, revenue
shocks escalating from cash-flow/earnings stress to a
credit crunch could unleash cross-default risks. And oil
in particular could turn out to be a nefarious catalyst of
such a contagious cash-credit-default spiral. Finally, a
resumption of US-China tensions post US elections is a
non-negligible risk even if virus risks fade quickly.
20
30
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90100
200
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700
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900
1,000
Dec-14 Jul-15 Feb-16 Sep-16 Apr-17 Nov-17 Jun-18 Jan-19 Aug-19 Mar-20
Oil's Plunge triggers a Blow-out in US HY (10Y) Yield Spreads reveal potentially devastating crunch Credit Markets if Risk Re-pricing Leads to Domino Effect of
Cross-Default Fears!
US High-Yield (HY) Spread (LHS, bps, inverted) Brent Crude Prices (RHS, US$bbl)
Depth and Speed of; i) blowout in US High
and Yield (HY) spreads (over UST yields)
as well as; ii) plunge in Oil; far more
brutal than in 2015-2016 .HY Spreads blow out to >1,000bps at the worst point, easing back to 800-900bps.
Sources: Bloomberg, Mizuho Bank
Policy: The bazookas have been brought out; and the
closest thing to unconditional monetary stimulus is on
display. From slashed rates to; unprecedented (in some
cases unlimited) liquidity provision to; credit facilities
(tuned to smaller, more vulnerable firms/industries) to;
asset purchases (QE-type or YCC-type) to fire-up risk
appetite via portfolio channels. An unprecedented scale of
global fiscal stimulus, in some cases north of 10% of
GDP, is leveraging on monetary largesse to pre-empt cash-
flow chokes turning into a solvency crisis and job losses.
These measures remain scalable as deflationary B/S
shock risks dominate policy priorities. There is no free
lunch though and risk of asset market distortions mounts.
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
2.6
2.8
3.0
3.2
3.4
3.6
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
2.6
2.8
3.0
3.2
3.4
3.6
Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20
UST yields have slumped to record lows (10Y sub-0.5% & 30Y slump to ~0.8%; but off lows now); revealing potent mix of safe-haven demand, Oil's Collapse & Fed
Slash Rates to effectiveky zero; triggering a sharp UST yield drop.
US 5Y5Y Inflation Swap (% LHS, 5dma)
10Y UST Yield (%, RHS 5dma)
Trump wins US Presidential elections.
Dis-inflationary spillover from "Brexit".
Fed's emphatic tightening cycle with quarterly hikes of 25bp amid QT
When a "Patient" Fed followed through in March 2019 with neutral "Dot Plot" Shift, yields started correcting down rapidly, culminating Dovish Fed pressures since mid-2019!
Sources: Bloomberg, Mizuho Bank
COVID-19 risks, Oil's Collapse &
"Coordinated Stimulus" Hopes!10Y Yields Free-fall to lows below 0.5%!
Asset Markets: Being brutally plunged into a bear
market in March perhaps motivated an exceptionally
strong policy response that justifiably incorporated risks of
a crash leading to an otherwise avoidable depression. Yes,
an imminent crash was averted. But uncertainty
prevails unchecked despite signs of recovery in asset
markets – specifically whether this is a bona fide bullish
turn or merely a dead cat bounce. The difficulty in
determining which is due to unprecedented monetary
largesse setting a bear-trap on a timer (of unknown
duration). But For now, caution rules and cash may still
reign King at times of stress; which markets remain
vulnerable to until rate of new cases start falling at least.
-57.3
-32.5 -30.2 -28.3 -26.9 -26.7 -26.1 -24.5-23.3
-21.5 -21.3 -20.8-19.6 -19.6 -17.9
-9.5
-69.5
-44.7-41.2
-38.1 -39.8-36.5 -38.3
-34.4-37.1
-33.9 -31.3 -29.5 -28.1
-35.7
-28.7
-14.6
(80)
(70)
(60)
(50)
(40)
(30)
(20)
(10)
0
No Holds Barred Central Bank action & fiscal response backstop, but stilll short of pulling
markets out of bear territory! (vs. recent peak; as of NY close, 7th Apr 2020)
Sources: Bloomberg, CEIC, Mizuho Bank
Correction
Bear Market
US equities' drop into a Bear Market alongside Oil's Collapse is building on market fears.
Fed's "big guns" attempt at assuaging markets has significantly trapped bears. It may have ironically spooked. Either way, Big Guns do not equate to silver bullets.
Shanghai Composite's Peak-to-Trough will be 25-26% if 2018 (pre US-China trade conflict highs are used)
0
10
20
30
40
50
60
70
80
90(32)
(28)
(24)
(20)
(16)
(12)
(8)
(4)
0
4
8
21-Jan 26-Jan 31-Jan 5-Feb 10-Feb 15-Feb 20-Feb 25-Feb 1-Mar 6-Mar 11-Mar 16-Mar 21-Mar 26-Mar 31-Mar 5-Apr 10-Apr
Equities not fully retracing losses despite "big bang" policy backstops, suggests lingering safe-haven bias; at least until "Peak COVID". But beware volatility & unevenness across
safe-assets. (Start 21-Jan-2020 | LHS: % Chg Cumulative | RHS: VIX)
Dow (% Chg since 21st Jan; Inverted Scale) VIX (RHS) Sources: Bloomberg, Mizuho Bank
Rising VIX, indicating higher volatility and "fear" in the markets.
Falling Dow Jones Equity Index (Dow).
Dow plunges >30% from 12th Feb peak to 12th March (partial recovery since)
Asia Quarterly – Q1/Q2 2020
- 6 -
EUR/USD Outlook: The current state of Eurozone
somewhat looks like a reminiscent of the European
sovereign debt crisis as countries disagree over
Covid-19 rescue plan and the issuance of
coronabond. The fate of the currency to some extent
depends on response in the coming months including
ECB’s outright monetary transactions (OMTs) and
European Stability Mechanism (ESM). Given its
-0.50% interest rate, a strong surge in demand for
EUR is unlikely in near future as investors continue
to flock to safe-haven greenback. Going forward,
given Eurozone’s large current account surplus, the
currency may see mild gains should the greenback
pulls back from an elevated level.
(6)
(4)
(2)
0
2
4
6
8
10
(6)
(4)
(2)
0
2
4
6
8
10
21-Jan 31-Jan 10-Feb 20-Feb 1-Mar 11-Mar 21-Mar 31-Mar 10-Apr
Gold (surge) is Most Buoyant on Debasement Bets; JPY has slipped partly on policy largesse led by ~20% of GDP fiscal boost; EUR
underperforms on ECB's "Whatever it Takes" Stance Takes Over.(% Chg Cumulative; from 21-Jan-2020)
JPYEURGold
Sources: Refinitiv, BIS, Mizuho Bank
USD/JPY Outlook: While these are uncertain times
and the general trend has been of USD strength, we
expect Japan's status as the world's largest external
creditor with an economy in deflation to continue to
support a modest appreciation bias for the currency
in the coming quarters. We expect the pair to remain
within the 100-110 range as fundamental factors
including the change nature of Japan's external credit
(from marketable securities to FDI) prevents a short-
term, large scale sell-off of the currency while
narrowing global interest rate differentials to peer
economies prevents a significant appreciation. 0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
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4.5
60
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100
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130
140
150
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
UST-JGB spread sollapse on the Fed's abrupt shift to ZIRP & QE Innifity may up latent USD/JPY Volatility.
USD/JPY
UST-JGB 10Y
Sources: CEIC, , Mizuho Bank
Oil (Brent): The collision of adverse demand
shocks from widening and deepening COVID-19
profusion (and expected impact) with price-war
induced supply outburst following failed OPEC+
talks was the perfect storm that decimated near-70%
of oil’s value down to ~$20; and conditions remain
precarious in April. As oil storage capacity gets
stretched, the risks of prices plunging to $10. Only
an awkward Saudi-US-Russia truce that relegates
strategic geo-political priorities, including OPEC+’s
shadow war with Shale, may turn things around
rapidly in the near-term. Otherwise, a more jagged
path in oil gradually back to $45-55 could take the
rest of the year and for COVID to peak.
13.0MBpd
11.3MBpd
9.8 MBpd
4.0MBpd
3
4
5
6
7
8
9
10
11
12
13
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
MB
pd
Clash of the Titans: Surge in US Crude Output not being liable to Output Cuts (unlike OPEC+) is s sticking point for OPEC+ (Saudi & Russia); Saudi ups optput to >12MBpD.
(MBpd)
US Russia Saudi Combined Iran-Venezuala-Libya
0
10
20
30
40
50
60
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80
900
5
10
15
20
25
30
35
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45
50
Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 Dec-19
Dirty Tanker-to-Brent Ratio - a barometer of cost side pressures as crude prices plunge - spiking to post-2004 highs reflects unsustainably low crude.
Dirty Tanker to Brent Ratio (10D Avg)
Brent 10D Avg, RHS, Inverted Scale)Sources: Bloomberg, Mizuho Bank
Sources: Bloomberg, Mizuho Bank
Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021
Fed Rate^ (%) 0.00-0.25 0.00-0.25 0.00-0.25 0.00-0.25 0.00-0.25 0.00-0.25
ECB Rate^ (%) -0.50 -0.50 -0.50 -0.50 -0.50 -0.50
BoJ Rate (%) -0.10 -0.10 -0.10 -0.10 -0.10 -0.10
EUR/USD* 1.10 1.12 1.13 1.14 1.14 1.15
1.16 - 1.15 1.08 - 1.14 1.08 - 1.14 1.10 - 1.15 1.10 – 1.16 1.10 – 1.16
USD/JPY* 108 106 105 104 103 102
101 – 112 105-111 104 - 110 102 - 108 100 - 108 100 -108
Brent Crude (US$/bbl)
22.8 32.6 44.5 53.2 46.5 56.8
21.6-71.5 15.5-36.5 23.5-56.0 38.0-62.5 41.0-66.8 40.0-72.5
Note: Values in black are historical whereas those in blue represent forecasts.
* Point forecast is for end-period. Q1 2020 ranges are from Bloomberg and only indicative.
^ Fed rates refer to the Fed Funds Target rate; ECB rates refer to the Deposit facility rate.
Asia Quarterly – Q1/Q2 2020
- 7 -
Asia Outlook: Dismal
Output: It will be a dismal first half for Asia, with
most economies set to slow substantially, if not slump
into outright contraction; i) devastated by external
headwinds as collapse of travel/tourism conspires with
supply-chain disruptions; ii) dented further as
domestic demand is depressed by social distancing
and other containment efforts, and; iii) hammered by
jarring financial/commodity market shocks. And to
be sure, the depth of oil’s plunge is a negative shock
across Asia – and not just for oil producers or refiners
– given its nefarious credit and asset market ripples
against a backdrop of demand weakness. Even a
tentative and fragile recovery in late 2020 will require
that US-China tensions do not resurface.
-210
-180
-150
-120
-90
-60
-30
0
30
-12.0
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
China India Korea Singapore Malaysia Indonesia Thailand Philippines Vietnam Australia
2020 "COVID-19 Gap": Growth shortfall as a % of ex-COVID near-term growth potential, reveal Thailand & Singapore as far more impacted (in relative terms) than China.
Q1 (%-pts chg, LHS) Q2 Q3 Q4 Full year 2020 (shortfall as % ex-COVID "Potential"; RHS)
Inflation: There will be three nuances of inflation that
is worth noting. First, the food-fuel divergence in cost-
push factors. While oil’s collapse will prove
pervasively dis-inflationary, supply-disruptions could
drive up price of consumables that disproportionately
inflict pain; food being a case in point. Second,
regardless of patches of severe cost-push, demand
shortfall will be deep and “sticky”; and this will
crucially allow policy setting to remain accommodative
for far longer than in usual cycles. Finally, if B/S
shocks persist, cost-demand squeeze may undermine
confidence regardless of inflation expectations.
(100)
(50)
0
50
100
150
200
20
25
30
35
40
45
50
55
60
65
70
75
80
85
Jan 18 Apr 18 Jul 18 Oct 18 Jan 19 Apr 19 Jul 19 Oct 19 Jan 20 Apr 20 Jul 20 Oct 20 Jan 21
Oil Price & Inflation Outlook: Oil prices in the $20 to $60 range will be highly dis-inflationary to somewhat neutral all the way till Feb 2021.
Spot Brent Price
Inflationary Effects of Oil (% YoY; RHS)
Projected Oil Inflation at $20 Brent
Projected Oil Inflation at $40 Brent
Projected Oil Inflation at $60 Brent Sources: Bloomberg, Mizuho Bank
Policy: A rash of rate cuts to record lows, in some
cases well below the GFC lows, amongst most EM
Asia central banks may have room to run. Especially
as oil price plunge alongside severe revenue shocks push
policy calculus to uncharted dovish territory. But
increasingly, unconventional monetary policy tools
dominate. Led by; i) more unrestrained liquidity
provisions, beyond reserve RRR cuts and OMO ramp-up,
to allow for relaxed collateral requirements as well as; ii)
asset purchases to avail liquidity and reduce credit stress.
Lowering borrowing costs to support fiscal stimulus is
also on the menu, but heavily qualified lest it is mistaken
for debt monetization.
4.40%
4.25%
0.75%
2.50%
3.25%
0.75% 0.25%
5.00%
0.125%
4.75%
4.25%
1.25%2.00%
3.00%
1.25%1.25%
7.00%
0.125%
0.25%0.50% 0.50%
2.00%
3.25%
3.75%4.65%
4.00%
0.125%
0
1
2
3
4
5
6
7
8
0
1
2
3
4
5
6
7
8
RBA (AU) BoT (TH) BoK (KR) BNM (MY) BSP* (PH) BI (ID) RBI (IN) SBV* (VN) Fed (US)
Led by the Fed's rate slashes to post-GFC ZIRP, most EM Asia central bank policy raters are now back at, or below all-time lows. But eroding Spreads (vs.) up risks of capital outflow volatility; with
RBI & BI particularly vulnerable.
Current
Post-GFC low
Mid-2020 Forecast
* using Refinancing Rate as the defacto policy rate for the SBVSources: Bloomberg, Mizuho Bank
-210
-125
-100
-125
-100-75
-175
-150
-225
25 0 25 050
25
125
175
125
-185
-125
-75
-125
-50 -50 -50
25
-100
-250
-200
-150
-100
-50
0
50
100
150
200
-250
-200
-150
-100
-50
0
50
100
150
200
RBI (IN) RBA (AU) BoT (TH) SBV (VN) BoK (KR) BNM (MY) BI (ID) BSP* (PH) Fed (US)
Based on cuts since 2019 (to Feb 2020), RBI has eased most (next to Fed) while BNM has eased the least. Looking through the cycle since mid-2017, BoK, BNM & BSP appear to have room to
cut further; but this ignores overall and more holistic monetary dynam
2019-Feb 2020 Policy Rate Chg
mid-2017 to end-2018 Chg
Net Policy Chg since mid-2017Tightening
Easing
Sources: Bloomberg, Mizuho Bank
FX: Whether the USD will be dented by concerns of
debasement from “QE Infinity” or strengthened by
safe-harbour plays is the puzzle that FX markets will
struggle with. Our best guess? USD dominance will be
favoured in Q2; at least until “peak pandemic” as the
negative tail of the “USD Smile” plays out. And in
the EM Asia FX space, the most vulnerable appear to
be the “twin deficit” currencies such as IDR and INR
given the additional fiscal pressures and monetary that
the COVID crisis unearths. Regardless, despite softer
UST yields, near-term pressures on AXJ are likely to
persist before gradually fading into late-2020. (18)
(15)
(12)
(9)
(6)
(3)
0
3
6
(18)
(15)
(12)
(9)
(6)
(3)
0
3
6
22-Jan 27-Jan 1-Feb 6-Feb 11-Feb 16-Feb 21-Feb 26-Feb 2-Mar 7-Mar 12-Mar 17-Mar 22-Mar 27-Mar 1-Apr 6-Apr 11-Apr
Broad-Based USD Dominance on COVID-19: THB, KRW & AUD worst hit on Wuhan lock-down; SGD stabilizes after sharp S$NEER correction; IDR catch down turns meltdown & MYR slides on politics!
(Cumulative % Chg vs. USD since 22-Jan-2020^)PHP IDR CNH AUD
SGD JPY THB INR
MYR KRW EUR
Sources: Bloomberg, Mizuho Bank
Dismal GDP reveals risks from COVID-19 supply-chain/demand.
Soft GDP and BoT cuts highlight further downside risks to THB as COVID-19 exposure remains a worry.
^22nd Jan was referenced as this allows "mid-Jan "Phase-1"
deal exuberance to fade and is just before the unprecedented
Wuhan lockdown on 23rd Jan.
AUD knock rippling via commodity & RBA
Sharp S$NEER drop inherently limits further SGD under-performance on a trade-weighted basis; and stabilization in COVID-19 cases help to stabilize SGD.
BUT, JPY regains "safe-haven" traction.
IDR MELTS DOWNon doubts of insulation.
Asia Quarterly – Q1/Q2 2020
- 8 -
China: Epi-Centres & After-Shocks
Growth: With Wuhan as the epi-centre of the COVID-19
outbreak, China’s activity seizure (and growth slump) will
lead the global trend. A confluence of lock-down, lunar
New Year holidays and slower than expected resumption of activity set to plunge Q1 GDP into an outright
contraction. The silver lining is that Q2 activity pick-up will
help. But the harsh reality is that China will not be spared
aftershocks from global headwinds. Consequently, growth
is set slump to ~2.4% (from 6.1% last year, which was hit
by US-China trade turbulence). And this is the optimistic
case, incorporating significant fiscal stimulus, unwavering
monetary/credit easing and some pent-up demand in Q4.
Upshot: Growth is likely to be hit be waves of demand
disruption, and so a V-shaped recovery is off the table.
0
2
4
6
8
10
12
14
16
0
2
4
6
8
10
12
14
16COVID's shock waves sends 2020 growth hurling below 3%; Beijing may
forgo a near-6% target focussing on quality of recovery instead.Actual GDP
GDP Target
10
.8
7.8
7.5
7.2
7.0
5.8
5.3
4.4
4.3
3.3
3.3
3.2
3.1
3.1
2.7
2.3
2.1
1.7
1.6
1.4
1.4
1.4
1.1
1.1
0.9
0.9
0.8
0.5
0.2
0.0
0
2
4
6
8
10
12
On a Relative Basis, Guangdong, Zhejiang, Henan, Jinagsu, & Shangdong are worst-hit outside of Hubei; once adjusted for GDP.
(Combined Case-GDP Exposure Impact; % ex-Hubei)
Combined Case-GDP Exposure Impact (% ex-Hubei)Sources: John Hopkins CSSE, Mizuho Bank Calculations
Provinces with Least Impact from COVID-19
Provinces Hardest Hit by COVID-19
Provinces with Significant, But Not the Worst, Hit by COVID-19
Industry: Just as China’s lock-down impacted global
supply-chains in most of Q1, Europe/US tightening on
containment/social distancing will also have negative
feedback to China’s supply-chain and demand. And so,
initial pick-up in primary industries, while emphatic, will
remain sub-par; merely flattered by a low base. Auto
durable/capital goods and trade-related service sectors
are also likely to struggle in the absence of targeted fiscal
stimulus. Admittedly, there may be some pent-up demand
late-2020 accentuated by inventory levels; but only
fleetingly so, and far short of offsetting output lost.
35.7
32.3
29.3
35.5
38.8
27.825
30
35
40
45
50
55
60
65
70
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20
China's Mfg PMIs crash to Record Lows in Feb as the Seizure in Acitivity Eclipses the Slump During GFC (lows in Nov-2008). While March Shows a Big Jump on Activity resumption, adverse Global Pandemic Effcts Could be a Setback All Over again.
PMI-Mfg New Orders Output
Sources: CEIC, Mizuho Bank
GFC lows in Nov 2008 have been broken wit h the COVID shut-downs.
-3.1-pts in the headline
-3.0-pts (-0.3-pts) in terms of New Orders (New Exports Orders)
-7.7-pts for "Output"
Growth dynamics: The conspiracy of demand and
supply shocks slamming into growth at the same time
means that even with exceptional credit push and fiscal
stimulus, growth will flag. To be sure, demand
substitution, on two counts, will help. First, offshore
spending (e.g. outbound tourism) being substituted onshore
will buffer domestic demand. Second, online/delivery
services to may also benefit from a “substitution” boost.
Nonetheless, aggregate demand dent will be hard to fully
compensate for. And this is despite all the stimulus
measures; as the lack of money velocity, rather than
liquidity, stifles.
0
2,000
4,000
6,000
8,000
10,000
12,000
0
40,000
80,000
120,000
160,000
200,000
240,000
280,000
320,000
360,000
400,000
1 6 11 16 21 26 31 36 41 46
Total Cases: Looking for the turning point in Italian/European/ US Cases! While Korea's inflection was "tighter"markets are hoping for China-like Peaking; for exponential case increase in Italy/Europe & US to Slow to a Plateau. But
meanwhile, "lockdown"
China (First Wave, 20th Jan)
Italy (Third Wave, 21st Feb)
US (Third Wave, 21st Feb)
Germany-France-Spain (Third Wave, 21st Feb)
Korea (Second Wave, 14th Feb; RHS)
Days since outbreak accelerated (China: start 20th Jan | Korea start-14th Feb | Italy/Europe/US start: 21st Feb)
Sources: Bloomberg, Mizuho Bank
0
200
400
600
800
1,000
1,200
1,400
0
10,000
20,000
30,000
40,000
50,000
60,000
1 6 11 16 21 26 31 36 41 46
Number of New Cases: Hopes are that Italian/European & US Cases will Slow; consistent with China's Experience of cases peaking in ~4 weeks. But until then activity may be disrupted; and demand may be dented more enduringly.
China (First Wave, 20th Jan)
Italy (Third Wave, 21st Feb)
US (Third Wave, 21st Feb)
Germany-France-Spain (Third Wave, 21st Feb)
Korea (Second Wave, 14th Feb; RHS)
Sources: Bloomberg, Mizuho Bank Days since outbreak accelerated (China: start 20th Jan | Korea start-14th Feb | Italy/Europe/US start: 21st Feb)
Inflation: While pork-flation driven pick-up in CPI was an
issue just a few months back, inflation as a whole is a non-
issue for China. To be sure, spots of cost push inflation –
mainly due to lock downs – in items such as food and
medical supplies are very likely the case. And this might
linger for most of the first half as China gradually resumes
“business as usual”. But collapse in commodity prices, led
by oil, will overwhelming be a dis-inflationary after-shock
in aggregate. Moreover, substitution effects could effectively
dampen cost pressures. Instead, the singe biggest take-away
is that underlying deflationary risks stemming from
revenue shocks and lingering global demand dent far outweigh any sustained cost-side inflationary pressures.
-8
-6
-4
-2
0
2
4
6
8
10
12
-20
-15
-10
-5
0
5
10
15
20
25
30
Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20
Producer PPI, a sub-component of PPI, reveals even sharper factory gate dis-inflation; reflecting falling profitability amid loss of pricing power. (% YoY)
Industrial Profits (Smoothed, 6mma)
PPI-Producer
Asia Quarterly – Q1/Q2 2020
- 9 -
Policy: Shock and awe is not the PBoC’s default
playbook. But lack of theatrics should not be mistaken for
a lack of efficacy or tenacity. Instead, the PBoC relies on a
whole range of liquidity and credit tools to augment far
more calibrated rate adjustments. In doing so, achieve
effective, scalable, targeted stimulus, without raising alarm about throwing caution (on mounting credit risks) to
the wind. Specifically; i) an expansion of targeting credit
stimulus to SMEs/worst-hit industries; ii) deeper targeted RRR cuts; iii) ramped-up TLTRO programs; iv) easier
debt/bond rollover LGFVs, SOEs and large corporates. In
concert, these will amplify monetary easing, enhance
transmission and create critical resonance with fiscal
stimulus efforts.
0
5
10
15
20
25
(4)
(2)
0
2
4
6
8
10
06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Calibrated, albeit Unfettered Easing Bias; favour loosening liquidity; targeted) RRR cuts; credit for SMEs; calibrated, but continuous drip-feed of rate cuts.
1-yr Lending (LHS) *Real interest rates (LHS) CPI (% y/y; LHS)
7-Day Repo (LHS) RRR (RHS) RRR - Small/Med banks (RHS)Sources: CEIC, Mizuho Bank
(30)
(20)
(10)
0
10
20
30
40
50
(30)
(20)
(10)
0
10
20
30
40
50
12 13 14 15 16 17 18 19 20
PBoC's targeted credit push and debt.bond rollover allowance likely tosee resurgent credit dynamics; but likely with overall credit growth to lead "shadow credit".
(Contribution to YoY Credit Growth, 6MAvg, %-pts)
"Shadow Credit" (ex-Bonds & BA)^
Bank Credit
Combined
^ Shadow credit refers to Aggregate Financing less conventional bank loans. And this measure omits bond issuances as well as Bankers' Acceptance (BA).
Sources: CEIC, Mizuho Bank .
External Position: Ironically, economic gloom may
coincide with a significant boost to C/A surplus. For one,
global travel bans in the wake of COVID will significantly
cutback, if not suspend, Chinese tourist dollars ending
up offshore. Second, being the first to recover, China’s
now advantageous position to ship out medical, and
personal protective gear to the rest of the world, over and
above resumption of broader manufacturing and exports
to replenish depleted global inventories. The former
dramatically reducing non-goods deficit while the latter
boosts net goods surplus; both; more than offsetting any
strategic stock-piling. Upshot: C/A surplus increasing by
1.2-1.8%-pts to trend back to ~3% of GDP.
1.3
-0.4
0.1 0.1
2.1
1.8
0.3 0.2
(1.0)
(0.5)
0.0
0.5
1.0
1.5
2.0
2.5
Total Ouward Travel Net Outward Travel Total IP Payments Net IP Payments
China's Net Outward Tourism is to the tune of nearly 2% of GDP. So COVID travel bans should result in 1.5-2.0% reduced C/A tourism outflows;
boosting C/A, all else equal. (% of GDP)
2002 2018
In 2002 more in-bound tourists visisted China than outbound Chinese tourists. Hence tourism boosted China's C/A ~0.4% of GDP then in contrast to the 1.8% of GDP reduction in 2018.
(80)
(40)
0
40
80
120
160
(80)
(40)
0
40
80
120
160
07 08 09 10 11 12 13 14 15 16 17 18 19 20
China: A strong Goods Balance is less likely to be eroded by tourist outflows amid global travel restrictions. This should boost overall C/A position. (US$bn, 4Qma)
Financial A/C Goods Services C/A
FX: However, that is not likely to translate into
resounding CNY strength anytime soon as uncertainty
around the COVID-19 pandemic and recession feats keep
USD premium intact. But equally, CNY will not be on a
free-fall imminently. For one, the PBoC attaches a
significant premium to CNY stability – rightly
recognizing that capital flow stability (which is in turn a
derivative of external liabilities and FX mismatch) far
outweigh misguided notions of mercantilist gains. China
recognizes it cannot grow by cheapening its exports. So
USD/CNY may trade the 6.95-7.25 amid USD-driven
volatility near-term before stabilizing 6.72-6.88 further
out as COVID risks subside.
-2.0
0.0
2.0
4.0
6.0
8.0
10.06.0
6.2
6.4
6.6
6.8
7.0
7.2
Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20
CNY Fixing has predominantly been at a premium to previous close; suggesting "counter-cyclical" bias that is supportive of CNY
USD/CNY (LHS, Inverted Scale) CNY Fix Fix Premium* (RHS, % premium of fix over previous close)
Stronger CNY
CNY fix weaker than previous closeFixing biased towards softening CNY
CNY fix stronger than previous close
Fixing biased towards stronger CNY
80
85
90
95
100
105
110
115
120
85
90
95
100
105
110
Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20
Despite COVID-19 shocks, CNY NEER has regained modest traction since US-China "truce" in Sep-2019. USD trend is instead dictating relative CNY shifts! (Index end-2014=100)
CNY NEER
USD (DXY) index (RHS; rebased: Start-2008 = 100)
60 per. Mov. Avg. (CNY NEER)
Paradigm shiftfrom "dirty" USD peg to NEER-based
Coronavirus outbreak, beyond triggering broad-based USD strength (on safe-haven demand), has not materially dented the stability in trade weighted CNY.
Sources: Bloomberg, Mizuho Bank
Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021
GDP (% y/y) -4.2% 2.1% 4.0% 6.2% 11.2% 6.8%
CPI (% y/y) 3.9% 1.3% 1.1% 0.3% 1.0% 3.4%
Policy Rate^ (%)
4.05% 3.80% 3.65% 3.60% 3.60% 3.60%
4.35% -- -- -- -- --
USD/CNY* 7.08 7.06 6.98 7.04 6.96 6.88
6.84 – 7.12 6.89 – 7.21 6.87 - 7.10 6.85 – 7.14 6.76 – 7.09 6.71 - 6.99
Note: Values in black are historical whereas those in blue represent forecasts. * Point forecast is for end-period. Q1 2020 ranges are from Bloomberg and only indicative. ^ The 1-yr Loan Prime rate is expected to be adjusted in small 5-10bps calibrations to 3.80%
Asia Quarterly – Q1/Q2 2020
- 10 -
India: Unwell Even Before the Virus Growth: Even before the “corona crisis” adversely
impacted India’s economy, culminating in a lock-down,
the economy was already unwell. Hobbled by fragile
consumer/business confidence and exacerbated by the
credit choke amid banks’, NBFCs’ and corporate B/S
woes, growth was already set to be sub-par. But now,
the depth and duration of pain are now likely to
worsen as revenue/income shocks amplify pre-existing
fragilities. Unprecedented monetary easing (rate cuts,
financing relaxation, 3.2% of GDP liquidity boost, etc)
and INR1.7trln (0.8% of GDP) fiscal stimulus provide
welcome relieve, but no panacea. Slump in growth to
3-4% may risk erring on the optimistic side.
4.3
6.4
7.3
6.5
5.3
8.0
8.7
5.9
7.1
7.6
8.0
7.2
9.1
8.7
9.7
8.6
6.3
5.8 6.5
7.6
8.2
7.1
6.2
5.6
5.7
5.6
5.1
4.7
(2)
0
2
4
6
8
10
12
(2)
0
2
4
6
8
10
12
Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep-18 Mar-19 Sep-19
India Growth: Sharper deceleration in underlying private sector demand, which is even more amplified in private sector domestic demand, reveals deep-seated
issues with domestic confidence predating COVID-19. (Growth YoY %)
GDP
GDP ex-Govt (Private Sector Demand)
GDP ex-Govt & Trade (Private Sector Domestic Demand)
Sources: CEIC, Mizuho Bank
Industry: The lockdown in India, along with external
supply-chain disruptions will inevitably hijack nascent
recovery in the auto sector – one of the few emerging
bright spots. And while significantly lower oil prices is
arguably a much-needed from the cost side of things for
industry, the biggest impediments continue to be
associated with demand deficit. Worryingly, cash
crunch amid COVID-19 may further stifle propensity
for capex/investments as the reflex to conserve more
precautionary cash overtakes; inadvertently retarding a
recovery even more. In short, the virus undermines an
already impaired virtuous investment cycle.
(24)
(20)
(16)
(12)
(8)
(4)
0
4
8
12
16
20
(14)
(12)
(10)
(8)
(6)
(4)
(2)
0
2
4
6
8
10
12
Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 Dec-19
India: Slump in capital goods & consumer non-durables suggests chronic confidence deficit; with hopes of a gradual recovery are retarded by COVID.
(3m Avg % y/y)
Ind Pdtn (3m Avg; % YoY) Consumer Durables Capital Goods (RHS)
Sources: CEIC, Mizuho Bank
IP understates the collapse in confidence; which in turn dampens GDP via "multiplier" effects.
(30)
(20)
(10)
0
10
20
30
40
(30)
(20)
(10)
0
10
20
30
40
11 12 13 14 15 16 17 18 19 20
Auto Demand Onshore has collapsed far more sharply suggests confidence shortfall; while external pick-up may be interrupted by COVID crisis.
(3mma % YoY; smoothed for demonetization & GST)
Domestic Vehicles Sales IP - Capital Goods Auto Exports
Growth dynamics: Notions that the RBI pumping
liquidity amounting to ~3.2% of GDP alongside 0.8%
fiscal fillip (even larger fiscal pipeline eyed) will
engineer a decent boost for growth (simplistically ~4%
of GDP) misses a key point. That is, liquidity is
“stock”, but growth requires “flows”. So, unless
business/consumer confidence is restored, a drop in
“money velocity” (flows) may neutralize intended
growth boost from liquidity infusion (stock). Crucially,
banks’ NPAs drag/ NBFC liquidity crisis entailing
cross-default risks, left unresolved, challenge kick-
starting a sustainable recovery. Especially if; i) fiscal
slippage “crowds out” the private sector, and; ii)
disproportional pain on the poorest is not mitigated.
60
62
64
66
68
70
72
74
76
78
80
0
5
10
15
20
25
30
35
07 08 09 10 11 12 13 14 15 16 17 18 19 20
Credit Growth Continues to Falter in a refelction of impediments to both credit demand & supply amid triple (banks, NBFC, corporate) B/S burden.
(3mma % y/y)
Non-food credit (LHS) Deposits (LHS) Loans-to-Deposits Ratio (%; RHS)Sources: Bloomberg, CEIC, Mizuho Bank
621
1,516
896
471
483
657
823
1,054 1,888
2,338
3,455
3,850
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
FY Ending 17-19 Avg FY Ending 20 FY Ending 21
Stretched Non-Tax Revenue Assumptions & Tax Revenues hit by the "corona-crisis" up risks if fiscal slippage ... (INR bn)
Others
Interest
Economic Services
SOE Dividends
RBI Dividends
Non-Tax Revenues (NTR)
NTR - Adjusted Dividends, ex-Telco Fines*
*Normalized RBI dividend growth of 10% per annum from base of FY17-19 levels. And Vodafone fine of INR11trln is assumed to be phased in. So Communication Services revenues (Part of Economic Services) is adjusted down based on 10% growth in spectrum fees from FY19/20.
INR950bn of "extraordinary" non tax revenues translates into ~0.3% of GDP revenue boost.
Inflation: The good news is that oil’s collapse is an
accelerant for dis-inflation, helping to offset lingering
cost-push from food. In turn, this should hasten headline
inflation catching down with “core” inflation to 3-4%;
potentially even under-shooting if exceptionally soft oil
prices persist. But the bigger picture of demand-pull
inflation being conspicuously absent is unchanged. And
perversely, cost-push impulses are ultimately deflationary
being defacto income confiscation. The post-COVID
economic climate will probably be one of mainly
contained inflation, looking past spurts of cost push. (2)
0
2
4
6
8
10
12
(2)
0
2
4
6
8
10
12
Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep-18 Mar-19 Sep-19 Mar-20
India CPI: Slump in Oil will be a Catalyst in Hastening inflation as food inflation, led by onions, moderate in any case; broader trend inflation
normalizing to 3.5-4.5% buys RBI some space. (% YoY)
Food Fuel & Light
Clothing Housing
Misc CPI
RBI Policy (Repo) Rate CPI ex-Food, Fuel&Light
Sources: CEIC, Mizuho Bank
^ NBFC: Non-banking financial companies in India, the source of credit surge in the recent past.
Asia Quarterly – Q1/Q2 2020
- 11 -
Policy: RBI rolling out the big guns with 75bps rate cut
(building on a total 135bp cuts in 2019) to a record low
4.40% complemented by a staggering INR6.5trln (3.2% of
GDP) liquidity cannon since Feb (100bps CRR cut to
3.00%, TLTROs, liquidity/credit easing, etc) “improve
liquidity, monetary transmission and credit flows”. But with
inflation likely to be reined in whilst threat of larger
demand shocks looms large, our sense is that the RBI is
inclined to scale up credit/liquidity facilities to provide
targeted and timely relief. Moreover, further headline rate
cuts to ~3.90% by mid-2020 are set to be pushed through
under the auspices of oil’s deflation. Above all, the RBI will
probably dig its heels in on “twist” and some form of YCC
to help anchor long-end bond yields.
-2
-1
0
1
2
3
4
5
6
7
8
-2
-1
0
1
2
3
4
5
6
7
8
Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 Jan-19 May-19 Sep-19 Jan-20
After five cuts of 135bps in 2019 and a 75bp "bazooka cut" this year (to 4.40%); Scope for another 25-50bps facilitated by softer Oil & Growth Slump.
RBI-Fed Spread
Fed (US)
RBI Policy Rate
Real Rate (Policy Rate less Inflation)
Sources: Bloomberg, Mizuho Bank
Cumulative 50bp of rate hikes in 2018.
Five back-to-back cuts of a cumulative 135bp in 2019 and another 75bps in 2020
External Position: Despite India’s reflex to secure food
and other key medical stockpile in reaction to COVID, the
collapse in Oil prices should help to keep C/A (deficit)
under wraps to below 0.5%, rather than escalating to 1.0-
1.5%. Nonetheless, the overall external position may not
benefit much; and could in fact deteriorate. Mainly as
capital outflows mount amid worries of revenue shocks
adversely impacting an economy already straining under
subpar economic conditions, hobbled by financial risks and
political uncertainty. In turn, the circular, adverse
feedback between falling asset prices and rupee
slippage.
20
25
30
35
40
45
50
55
60
65
70
75
80(18)
(16)
(14)
(12)
(10)
(8)
(6)
(4)
(2)
Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 Jan-19 May-19 Sep-19 Jan-20
While global crude prices plunge in Q1 narrower trade deficit (as well as C/A deficit)may be a silver lining. But at these levels of crude price demand shocks outweigh
the price relief. (3mma US$bn)
Trade Deficit
India Crude Oil Basket (US$/bbl, 3mma; RHS)Sources: CEIC; Mizuho Bank
2
4
6
8
10
12
0
1
2
3
4
5
6
06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
India: C/A Deficit is set to be subdued by Oil's Plunge. But while the relief is the real concern is about capital outflows amid risk aversion.
(4Qma, % of GDP)
C/A Deficit (% of GDP)
Trade Deficit (% of GDP; RHS)
FX: Rupee slippage in the 76-78 range remains a
heightened risk near-term. And to be clear, bouts of
interim relief rallies (below 74-75) should not be mistaken
for one-way, sustained rebound in the INR. For one, India
is nowhere near being out of the woods as an initial three-
week lockdown since late-March is likely to be extended.
Crucially, oil prices collapsing so sharply (to $20-30 lows)
is also a net rupee negative insofar that it reflects; i)
demand shocks; ii) sharp capex capitulation, and; iii) wider
high-yield spreads; which overwhelm any C/A advantages
(for rupee) as well as backstop from FX reserves. Fiscal
slippage risks and stretched monetary largesse could also
stifle rupee recovery; even when COVID risks pass. And
so we expect a gradual easing under 72 towards 70 into
2021; rather than a surge to 65-68.
(3)
(2)
(1)
0
1
2
3
(2,000)
(1,500)
(1,000)
(500)
0
500
1,000
1,500
2,000
Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20
If the recent slump in SENSEX Persists & Extends, triggering equity out-flows, Rupee could be under renewed pressures.
Smoothed (4wkma, USDmn, LHS) Equity flows
INR % Chg (Wk/Wk, 4wkma, RHS)
Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021
GDP (% y/y) 3.7% 2.3% 2.8% 3.8% 4.6% 6.0%
CPI (% y/y) 6.5% 2.7% 3.0% 2.5% 2.4% 4.3%
Policy Rate (%) 4.05% 3.90% 3.90% 3.90% 3.90% 4.15%
USD/INR* 75.3 74.2 73.2 73.8 72.2 71.0
70.7 - 76.4 71.3 - 76.9 71.3 – 75.3 70.5 - 75.5 68.9 - 74.5 68.2 – 73.0
Note: Values in black are historical whereas those in blue represent forecasts. * Point forecast is for end-period. Q1 2020 ranges are from Bloomberg and only indicative.
Asia Quarterly – Q1/Q2 2020
- 12 -
South Korea: Challenging external environment
Growth: Q4 GDP growth picked up marginally to 2.3%
YoY, partly due to base-effect, with government
spending continuing to play a sizeable role. Investment
grew YoY for the first time in seven quarters, again
driven by public investment as government ramped up
civil engineering and specialized construction projects.
Going forward, growth is set to face headwinds imposed
by Covid-19 outbreak in 1H. The nascent recovery in
exports might be dampened due to disruption in supply
chain. Private consumption will also face downward
pressure as people avoid going out. Expansionary fiscal
policy will gain be the main pillar in shoring up growth.
-3
-1
1
3
5
7
2015 2016 2017 2018 2019
Contribution to GDP (%YoY -ppts)Net exports Change in stocks
GFCF Govt spending
Private consumption GDP
Source: CEIC, Mizuho bank
Industry: Trade activities have been holding up
relatively well as of Q1 though the trend of recovery
may see a reversal in coming months due to the
increasing widespread of COVID-19 across the globe.
For one, South Korea’s own confirmed cases have seen
dramatic increase in Mar, which is likely to see disrupted
factory operation due to work-related infections. The
negative impact of delayed resumption of factory
operation in China is also set to show up in full swing as
manufacturers from automobile, mobile phone and
semiconductor sectors ran out of inventory of
intermediate goods.
(20)
(10)
0
10
20
30
2015 2016 2017 2018 2019 2020
Contribution to export growth(3mma, ppts, %)
ChemicalsMachineryEEPassenger CarVesselsCrude materials/fuelsExports, YoY
Source: CEIC, Mizuho Bank
Growth dynamics: The fiscal stimulus launched so far
by the government to combat Covid-19 has been
relatively small at around 0.6% of GDP when other
Asian countries have introduced stimulus as large as
10% of GDP. Though arguably South Korea has
managed to contain the spread in the absence of broad
lockdown measures, consumer based services sector are
still likely to be affected evidenced by slowing growth of
retail sales and plunging consumer confidence. Whilst
the initial extra budget largely focused on boosting
medical equipment, supporting SMEs in the affected
area, the government is drawing up a second
supplementary budget (up to 7.1tn Won) to dispense
cash payments to families in a bid to shore up domestic
demand
YearSize (tln
Won)
% of
GDPFocus Area
2015 11.6 0.7% Address negative effects of the
outbreak of MERS, new spending plans
2016 11.0 0.6%
Support corporate restructuring; create
jobs for laid-off workers in the affected
industries
2017 11.2 0.6%Job creation for the young; boost
economic growth
2018 3.8 0.2%Job creation; help industrial regions
coping with layoffs
2019 6.7 0.4%Address fine dust; support job creation;
boost exports ar SMEs
2020 11.7 0.6% COVID-19 affected areas and firms
Source: Press media, Mizuho Bank
Inflation: Headline inflation rebounded to above 1%,
predominately led by higher fuel prices as last year’s
petroleum prices were lowered due to temporary fuel tax
cut. Given the recent sharp plunge in crude oil prices,
this is likely to temper headline inflation going forward
as oil prices are likely to stay low for some time.
Furthermore, core inflation is also set to stay tepid too at
around 0.5% given minimal underlying pricing pressure
as growth comes under pressure. As such, we expect
inflation to stay at low-1% in 1H. -1.0
0.0
1.0
2.0
3.0
2016 2017 2018 2019 2020
Contribution to inflation (%YoY, - ppts, 3mma)
Transport Food Core Policy rate CPI - headline
Sources: CEIC, Mizuho Bank
Asia Quarterly – Q1/Q2 2020
- 13 -
Policy: BoK has slashed its interest rate to a record low
of 0.75% after a growing number of global central banks
jumped on the bandwagon to ease. The record 150bps
cut from the Fed has certainly provided some room for
other central banks to maneuver. The rapid increase of
COVID-19 cases in Europe and the US means that this is
no longer a purely supply-side disruption as longer this
drags on, it is set to weigh on demand side as employers
lay off staff and freeze hiring. The potentiality of further
rate reduction will depend on how long it takes for the
coronavirus situation to stabilize and the effectiveness of
the BoK’s targeted liquidity boosting measures and the
upcoming extra budget.
(2)
(1)
0
1
2
3
4
(2)
(1)
0
1
2
3
4
2015 2016 2017 2018 2019 2020
Policy Rate vs. Inflation, Real Interest Rate (%, 3mma)
Real interest rate Headline CPI
Policy rate Core CPI
Sources: CEIC, Mizuho Bank
External Position: Current account surplus continues to
moderate further on lower trade surplus as falling
exports prices continued to weigh on nominal exports
whilst real exports has returned to positive growth.
Going forward, trade surplus is likely to sustain at its
current level as fuel imports will fall substantially on
lower crude oil prices whilst electronics are expected to
backstop growth amidst increasing demand for chips
from 5G and data centers. Portfolio investments have
seen net outflows as investors fled EM assets with
KOSPI falling 25% YTD.
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
2014 2015 2016 2017 2018 2019
Current Account (% of GDP, 4QMA)
Goods Services
Primary income Secondary income
C/A
Source: CEIC, Mizuho Bank
FX: KRW has seen larger swings in Q1 with USD/KRW
testing 1,290 before paring back to mid-1200. The
currency has largely been traded like a proxy for risk
sentiment in Asia as its volatility has also increased
lately. Strong safe haven bids on dollar are likely to pose
continuous headwinds on the currency though we
believe that KRW has the potential to outperform other
AxJ currencies should the government ramps up further
stimulus measures to cushion domestic demand, where
private consumption arguably may be in a better shape
than others in amidst less stringent lockdown measures.
950
1,000
1,050
1,100
1,150
1,200
1,250104
106
108
110
112
114
116
118
120
2015 2016 2017 2018 2019 2020
Exchange Rate
NEER
USD/KRW (inv. Scale, RHS)
Source: CEIC, Mizuho Bank
Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021
GDP (% y/y) 0.3% 0.1% 1.0% 1.2% 3.1% 3.1%
CPI (% y/y) 1.2% 0.6% 0.9% 1.0% 1.0% 1.4%
Policy Rate (%) 0.75% 0.50% 0.50% 0.50% 0.50% 0.50%
USD/KRW*
1220 1220 1180 1200 1170 1150
1150 – 1293
1170 - 1270 1150 - 1220 1150 - 1230 1130 - 1220 1120 - 1190
Note: Values in black are historical whereas those in blue represent forecasts. * Point forecast is for end-period. Q1 2020 ranges are from Bloomberg and only indicative.
Asia Quarterly – Q1/Q2 2020
- 14 -
Singapore: 3D-Recession
Growth: A significantly deeper contraction in Q2, after 2.2%
YoY drop in Q1, is all but unavoidable. And a recession is now
no longer a question of “if”, but of depth, duration, and
lasting damage (“3D”) – in terms of jobs and balance sheet
(B/S) shocks. Official GDP forecasts revised down to -4 to -1%
(from …) reveals the small and open economy exposed to
every bump; from COVID-19 travel ban impact on its
regional air hub status /tourist sector; to the supply-chain
disruptions buffeting manufacturing; demand dent from
revenue shocks; social distancing further dampening
activity/demand. All of which are compounded by financial and
oil market dislocations. This “perfect storm”, is set to inflict a
2.8% contraction for 2020; with risks to the downside and a
precarious, fragile recovery into 2021.
7.9
7.4
9.0
3.9
-10.1
-8.5
-8.9
-6.7
-15.0 -10.0 -5.0 0.0 5.0 10.0
AFC (1997-98)
"Dot Com" (2000-01)
GFC (2008-09)
COVID-19 (2019-20)
Crisis Impact on Singapore's Growth: In terms of absolute growth rate shock (drop), AFC was the worst (-10.7%-pts); but relative to baseline
growth ...
Growth "Shock" (% Pts) Baseline (Avg 2-Y Prior) Growth Rate (% YoY)
-200 -180 -160 -140 -120 -100 -80 -60 -40 -20 0
AFC (1997-98)
"Dot Com" (2000-01)
GFC (2008-09)
COVID-19 (2019-20)
Magnitude of Singapore's Growth Shock (Adjusted for Baseline): COVID-19 Could Have a Far Larger, and Longer-Lasting Imapct (10.7%-pts); but relative to
baseline growth
Growth "Shock" (Proportion of Baseline Growth %)
Industry: So-called “front-line” industries taking the brunt
upfront are travel/tourism/hospitality followed by F&B scene
with spillover to transport. But the buck doesn’t stop there, as
global pandemic negative “contagion” proliferates via supply,
demand and financial channels. Also, tighter containment
efforts, led by stringent social distancing, have rapidly
transmitted “revenue shocks” more widely to retail trade and
across services. Amplifying pain is the Oil’s brutal (~50%)
drop cascading through Singapore’s extensive petrochemical,
O&G services, storage and trading sectors; consistent with a
deeper and longer lasting economic shock if credit stress and
energy sector capex plans pullback sharply.
95
100
105
110
115
120
125
06/2002 09/2002 12/2002 03/2003 06/2003 09/2003 12/2003 03/2004 06/2004 09/2004 12/2004
Singapore SARS Impact: Negative Shocks on GDP peaked after three quarters (Q4 2002 to Q2 2003); restored following2-3 quarters.
(Indexed; Q2 2002=100)
GDP GDP ex-SARS
It took a total of ~6 quarters for GDP to be restored to a hypothetical "sans-SARS" state
20
30
40
50
60
70
80
90
100
102
103
104
105
106
107
108
Oct-14 May-15 Dec-15 Jul-16 Feb-17 Sep-17 Apr-18 Nov-18 Jun-19 Jan-20
Oil's plunge this time was more consistent with a deeper S$NEER step reduction; squaring with the risks of prolonged negative output gap.
S$NEER adjusted for appreciation bias* (LHS; Levels)
Brent Crude Prices (RHS, US$bbl)Sources: Bloomberg, Mizuho Bank
S$NEER is discounted by the policy appreciation bias to "de-trend" and better correlate to Oil prices (assumed to be "stationary".
Growth dynamics: The nature of the “coronavirus crisis” is
such that in the details, there will admittedly be some; demand
creation for tele-commuting solutions, demand substitution to
online/delivery services; demand brought forward from
household/strategic stock-piling. Nevertheless, in aggregate,
private sector demand will undeniably be compromised. And
in recognizing sharp demand shortfall, the government has
unveiled three quick successions if counter-cyclical fiscal
stimulus totaling near-S$60bn (12% of GDP). Fiscal measures
particularly aim to “short-circuit” the fallout from cash/liquidity
seizures from revenue shocks to spiraling into a credit crunch,
degenerating into to a solvency crisis and subsequent job losses.
-9.5%-7.5%
-2.1%
-6.2%
-62.9%
(70)
(60)
(50)
(40)
(30)
(20)
(10)
0
10
20
30 The "Triple Fiscal Boost" anticipated this time, blows away all pervious counter-cyclical fiscal counter-strike seen; ~12% of GDP as "direct" COVID pain relief!
(% of Operating Revenues)
GFC
SARS"Dot Com" Bust
Oil/China "Shock"
Budget Surplus corresponds to fiscal tightening, all else equal.
Budget Deficit corresponds to fiscal stimulus, all else equal.
COVID Response = "Unity" + "Resilience + Solidarity
Inflation: To be sure, inflation drivers are not homogeneous
one; given the juxtaposition of deep dis-inflationary shocks
from of Oil’s dramatic crash, upside pressures from cost-
push that results from supply disruptions; and
administrative price relief (suspension in government fees,
road tax reductions, subsidies for utilities/conservancy etc.).
But in concert, dis-inflationary dynamics, both in amplitude
and durability, are likely to overwhelm. And CPI – both
headline and core – are set to fall close to 1% on the year
in 2020, before recovering gradually; especially given
considerably weaker wage-price mechanics amid softer job
market hampering demand-pull inflation from resurfacing.
(2)
(1)
0
1
2
3
4
5
6
10 11 12 13 14 15 16 17 18 19 20
Headline CPI restoration towards 1% interrupted by Oil shocks (supply-side) & COVID impact (demand-end); Dis-inflation to Persist in 2020,
with headline and Core CPI set to turn Negative.
CPI CPI ex-OOA*
* CePI ex-OOA: CPI ex owner-occupied accommodation imputed rental.
Asia Quarterly – Q1/Q2 2020
- 15 -
Policy: The MAS’ double barelled easing, comprising; i)
S$NEER slope flattening (from ~0.5% to 0% per annum
appreciation rate) and; ii) re-centring the S$NEER mid-point
lower (by an estimated 40-70bps) helps to position monetary
policy for a prolonged slowdown and provide some degree of
instant buffer against the abrupt revenue shocks. While the MAS
remains “vigilant” of more downside risks, the bar is fairly
high for further easing – most likely for another mid-point shift
down (a.k.a. “step depreciation”). As the MAS rightly alluded,
monetary policy merely supports much more fine-tuned
fiscal stimulus – ramped up tremendously to nearly S$60bn
(~12% of GDP). We thus expect the MAS to maintain status
quo at least into H1 2021. And
102
103
104
105
106
107
108
109
110
111
102
103
104
105
106
107
108
109
110
111
Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 Jan-19 May-19 Sep-19 Jan-20 May-20
MAS "affirms the current ... slightly below the mid-point" S$NEER | Will "adopt zero percent ... rate of appreciation starting at the prevailing level of the S$NEER" | Effectively; i) a re-centring lower by ~40-
70bps and; ii) suspending S$NEER appreciati
NEER
Mid-Point
Sources: MAS, Bloomberg, CEIC , Mizuho Bank
+/- 2% from S$NEER mid-pt
Stronger trade-weighted SGD
Apr '16: Surpriserevocation of appreciation bias (to 0% slope) prompts knee-jerk, but short-lived S$NEER slip.
Oct '16: MAS invokes "neutral ... for extended period" dovish caveat.
Apr '17: MAS surprises by retaining "neutral for extended period" dovish caveat.
Apr '18: MAS restores "slight" S$NEER slope. We estimate ~0.5% per annum
S$NEER rise within "neutral" 0% policy slope was recognised as defacto tightening; supporting longer policy hold.
Sharp S$NEER plunge entails intra-band, defacto easing; exploited amid COVID-19 risks. Diminishes case for urgent, inter-meeting moves.
S$NEER drop effectivelyachieves further easingdespite no additional policy moves.
Oct '18: MAS "slightly" increases S$NEER slope gradient. We estimate to ~1.0% per annum
Apr '19:
MAS Holds. We estimate to ~1.0% per annum
Oct '19: MAS "slightly" reduces S$NEER slope gradient. We estimate to ~0.5% per annum
External: Neither the exceptional C/A strength (~17% of
GDP for 2019) nor the seasonal dip for Q4 (to ~15% of GDP)
deserve attention. Instead, the overall external balance (BOP)
turning negative (exaggerated by exceptionally large financial
outflow in Q2 2019) is worth a closer look – especially if
coordinated global financial market volatility is heightened
(to the point of meltdown risks). That said, Singapore’s quasi
safe-haven status helps to buffer SGD from “safe-
harbour” refuge from risks such as COVID-19 within EM
Asia (re-allocation rather than brutal liquidation). Especially
as the strongly accretive C/A supports stability. (15)
(10)
(5)
0
5
10
15
20
25
30
35
40
(15)
(10)
(5)
0
5
10
15
20
25
30
35
40
07 08 09 10 11 12 13 14 15 16 17 18 19 20
"Margin Squeeze" in the midst of the US-China Trade Conflict appears to have eroded te Goods Balance. But the far Greater
Risk at this Juncture is from Financial Outflows on BOP. (% of GDP, 4Qma)
Goods Services
Income & Others BOP
C/A Sources: Bloomberg, Mizuho Bank
FX: Despite MAS’ “double barrelled” easing, a weaker SGD
or S$NEER is not to be assumed. For one, slope flattening
merely suspends appreciation bias. And while re-centring
lower is “step deprecation” of band, actual S$NEER shift
down predates MAS move. Whereas, MAS’ stance that fiscal
policy will do the heavy-lifting; dispels misguided notions of
unbridled monetary stimulus. Crucially, the MAS refraining
from widening policy bands reveals that excessive SGD
drop is neither helpful nor desirable. In turn, squaring with
S$NEER around mid-band; with USD trend and FX
volatility dictating USD/SGD. Upside risks to USD/SGD are
elevated near-term amid COVID and wider market risks.
Further out sub-1.38 USD/SGD begins to appear.
1.33
1.34
1.35
1.36
1.37
1.38
1.39
1.40
1.41
1.42
1.43
1.44
1.45
1.46
1.47
1.48
1.33
1.34
1.35
1.36
1.37
1.38
1.39
1.40
1.41
1.42
1.43
1.44
1.45
1.46
1.47
1.48
9-Aug-19 3-Sep-19 28-Sep-19 23-Oct-19 17-Nov-19 12-Dec-19 6-Jan-20 31-Jan-20 25-Feb-20 21-Mar-20 15-Apr-20
Implied SGD Trading Band Corresponding to S$NEER Policy Band: SGD closes up gap with mid-point after MAS "affirms" (re-cnetres). Further USD moves more
dependent on USD trends/Fed policy. (based on Mizuho estimates)
SGD (Actual) SGD (Mid Pt)
Sources: Bloomberg, CEIC, Mizuho Bank
Stronger SGD
2019 nCoV related risks hammering CNY and Asia FX correlate to the policy bands shifting down, while earlier MAS easing bets account for actual SGD falls within (relative to) the bands.
Q1 2020 Q2 2020 Q3 2019 Q4 2020 Q1 2021 Q2 2021
GDP (% y/y) -2.2% -5.7% -3.9% 0.8% 3.4% 7.1%
CPI (% y/y) 0.1% -1.7% -1.2% -0.7% 0.2% 1.8%
FX Policy
Flatten S$NEER & Re-Centre to Prevailing
S$NEER (~40-70bps lower)
Status Quo Status Quo
USD/SGD* 1.42 1.40 1.38 1.40 1.38 1.37
1.34 – 1.46 1.36 – 1.44 1.35 – 1.41 1.35 – 1.42 1.34 – 1.41 1.33 – 1.40
Note: Values in black are historical whereas those in blue represent forecasts. * Point forecast is for end-period. Q1 2020 ranges are from Bloomberg and only indicative.
Asia Quarterly – Q1/Q2 2020
- 16 -
Malaysia: Pandemic, poor commodity prices and political pressures
Growth: The 2020 growth outlook will be dragged by
the COVID-19 pandemic, volatile global commodity
prices and underlying political uncertainty. Apart
from the domestic demand contraction from the
Movement Control Order (MCO), the collapse in
commodity prices will put significant pressure on
exports. There may also be a drag from continued
political uncertainty as the new coalition supporting PM
Muhyiddin Yassin will only be able to showcase a
majority in Parliament when (if) it re-opens in May.
-3-2-1012345678
Mar-16 Dec-16 Sep-17 Jun-18 Mar-19 Dec-19
Change in inventories Net exports
Public sector growth Private sector growth
Real GDP growth, % YoY
pp
Source: CEIC; Mizuho Bank
Industry: The outlook for the industrial sector looks
bleak in the near-term. Following the outbreak of the
COVID-19 pandemic, Malaysia’s manufacturing sector
(which was already suffering from weak external
demand and low palm oil production) is under immense
duress. Although the slowdown in January IP to 0.6%
YoY from 1.3% in Q4 was not sharp; we expect a deeper
and more prolonged slowdown to emerge as the spread
of the virus domestically intensifies. Malaysia imposed a
MCO (effective lockdown) from March 18 to April 14,
bringing non-essential activity to halt during this period.
0
1
2
3
4
5
6
7
8
Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20
Industrial Production Index (IPI)
IPI: Manufacturing (Mfg)
3mma, % YoY
Source: CEIC; Mizuho Bank
Growth dynamics: We expect 2020 GDP growth of
0.7% based on an improvement in H2 following a
contraction in Q2 2020. The risks, however, are clearly
to the downside as the duration and severity of the
outbreak are little known. The government announced
support for the economy worth MYR260bn in the form
of cash injections, support for SMEs and welfare
measures. The government pegged the fiscal to widen to
~4.0% of GDP from an original budget estimate of 3.2%.
However, given the hit to revenues from low commodity
prices and the likelihood of increased fiscal support, we
expect the deficit to be wider.
-60
-40
-20
0
20
40
60
80
100
120
140
Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20
Capital goods imports
Palm oil production
Passenger vehicle sales
CG expenditure
%YoY
Source: CEIC; Mizuho Bank
Inflation: Headline inflation will remain subdued for
the rest of the year; albeit rising from the lows of
2019. Headline inflation eased to 1.3% YoY in February
from 1.6% in January on account of lower transportation
and food inflation; but it was higher than in 2019 as the
base effects from the changes in the consumption tax
policy faded. For 2020, we expect any further increases
in headline inflation to be capped by falling oil prices
and the subdued domestic demand outlook. Any upside
risks to inflation will likely come from food prices,
which given that lockdowns conditions could led to
shortages in agricultural labour and/or fewer
transportation options, resulting in lower food supply
and higher prices. That said, overall price pressures will
remain contained.
-2
-1
0
1
2
3
4
5
6
Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20
Non-food
Food
CPI inflation, % YoY
pp
Source: CEIC; Mizuho Bank
Asia Quarterly – Q1/Q2 2020
- 17 -
Policy: BNM cut by a cumulative 50bp in Q1 2020 to
cushion against downside risks to growth and left the
door open for further easing. We see room for another
75bp in rate cuts, taking the policy rate below the
previous low of 2%. BNM also stepped up liquidity
support measures – it cut the RRR by 1%, allowed
banking institutions to offer a deferment of
loan/financing repayments for six months to individuals
and SMEs, increased support for corporates to
restructure/defer loan obligations and relaxed capital
buffer requirements for banks. More such measures are
possible as the growth outlook deteriorates.
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
5.0
5.1
5.2
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Jan-12 Jan-14 Jan-16 Jan-18 Jan-20
Policy Rate
Weighted average lending rate (RHS)
Source: CEIC; Mizuho Bank
% %
External Position: The COVID-19 outbreak and
geopolitical tensions sent commodity prices into a
tailspin with oil prices stabilizing at USD25/barrel, well
below previous level of USD55-60. This is a strain for a
net commodity exporter like Malaysia. In addition,
electronics and broader manufacturing supply-chains
across the world are being disrupted by large-scale
shutdown and stricter quarantine rules impacting
production. On the flipside, we domestic demand and in
particular, slower investment spending will cap import
growth. As such, we expect the current account surplus
to narrow in 2020 from 2019.
-8
-6
-4
-2
0
2
4
6
8
10
12
2013 2014 2015 2016 2017 2018 2019 2020f 2021f
Services balanceSeconday income balancePrimary income balanceGoods trade balanceCurrent account balance
%GDP
Source: CEIC; Mizuho Bank
FX: The general sentiment of risk aversion led to a sell-
off in MYR assets, putting significant depreciation
pressure on the MYR. But following the US Fed’s
commitment to unlimited QE, the weakness started to
reverse to some extent. At this point, we think the
USD/MYR will end-Q2 around 4.30 levels as the spread
of COVID-19 outbreak across the globe peaks. That
said, the MYR is susceptible to weakness as outflows
risks from foreigners, who own more than 38% of
government securities, remains high. Furthermore, the
currency outlook is not helped by the weak fundamental
growth picture and uncertainty around the duration and
severity of the COVID-19 pandemic.
3.6
3.7
3.8
3.9
4.0
4.1
4.2
4.3
4.4-20
-15
-10
-5
0
5
10
Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 Dec-19
MYRbn Equity
Corporate bonds & sukuk
Government bonds, BNM bills & T bills
USD/MYR (RHS)
Source: CEIC; Mizuho Bank
USD/MYR
Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021
GDP (% y/y) 0.3% -0.4% 1.2% 1.6% 3.9% 4.2%
CPI (% y/y) 1.5% 1.4% 1.2% 1.2% 1.5% 1.5%
Policy Rate (%) 2.50% 2.00% 1.75% 1.75% 1.75% 1.75%
USD/MYR* 4.32 4.30 4.28 4.34 4.30 4.25
4.05 – 4.45 4.14 - 4.46 4.17-4.40 4.16 - 4.44 4.11 - 4.43 4.09-4.37
Note: Values in black are historical whereas those in blue represent forecasts. * Point forecast is for end-period. Q1 2020 ranges are from Bloomberg and only indicative.
Asia Quarterly – Q1/Q2 2020
- 18 -
Indonesia: Bracing for impact from the COVID-19 storm
Growth: GDP growth was stable at 5% in Q4 2019
supported by domestic demand. The activity data for the
first few months of 2020 were mixed, despite the
government officially reporting the first domestic
COVID-19 cases only on 2 March. Indicators such as car
sales, retail sales and consumer confidence dropped in
Jan/Feb while export and import growth picked up. The
outlook for the rest of 2020 is unambiguously weak as
the COVID-19 outbreak takes a toll on domestic and
global growth.
-3
-1
1
3
5
7
9
11
Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19
Domestic demand Net exports
Inventories Others
GDP growth, % YoY
pp contribution
Source: CEIC; Mizuho Bank
Industry: Although Indonesia’s supply-chain is not
heavily integrated with global supply chains, which are
experiencing significant disruptions on account of the
COVID-19 outbreak, manufacturing and export growth
are set to suffer. Commodity exports (the lion’s share of
Indonesia’s exports) will suffer from falling prices and
lower volumes on account of disruptions to production
while manufactured goods exports will be weakened by
poor demand conditions.
-15
-10
-5
0
5
10
15
20
25
Jan-16 Aug-16 Mar-17 Oct-17 May-18 Dec-18 Jul-19 Feb-20
Exports: Vol Imports: Vol
3mma, % YoY
Source: CEIC; Mizuho Bank
Growth dynamics: The biggest hits to growth will be
from weakened domestic spending and a halt in tourism
arrivals. We expect GDP growth for 2020 to come in at
2% YoY from 5% in 2019. In light of the severity of the
COVID-19 outbreak, the President signed a Perppu on
31 March allowing the fiscal deficit to widen beyond the
legal limit of 3% of GDP for 3 years. For 2020, the
government has estimated a deficit of ~5.1% of GDP to
accommodate for additional expenditures directed
towards healthcare, social security, tax incentives and
credit restructuring for SMEs. The risk is that the deficit
is even larger given the hit to revenue collections from
weaker commodity prices and more expenditure support
to growth.
100
105
110
115
120
125
130
135
140
145
150
-60
-40
-20
0
20
40
60
80
100
Jan-10 Apr-11 Jul-12 Oct-13 Jan-15 Apr-16 Jul-17 Oct-18 Jan-20
Motor Vehicle Sales: Retail
Retail Sales Survey: Retail Sales Index
Motorcycle Sales: PT Astra: Local
Consumer Confidence Index: Expectations (RHS)
%YoY%YoY
Source: CEIC; Mizuho Bank
Inflation: Headline inflation remained stable at 3% in
March as higher food/beverage and tobacco inflation
were offset by lower transportation inflation. The
government is trying to expedite the import of essential
food items such as garlic, beef, chilli ahead of the fasting
month of Ramadan in May, when demand (and prices)
tends to rise. The disruptions to the supply-chain from
the COVID-19 outbreak could cause some delays in
imports; potentially resulting in higher food inflation.
Nonetheless, with domestic demand soft, we expect
inflationary pressures to remain subdued and headline
inflation to remain within BI’s 2-4% target range.
-60
-40
-20
0
20
40
60
80
Sep-17 Apr-18 Nov-18 Jun-19 Jan-20
Local Granulated Sugar
Chicken & beef
Shallot & garlic
Chillies & pepper
3mma, % YoY
Source: CEIC; Mizuho Bank
Asia Quarterly – Q1/Q2 2020
- 19 -
Policy: Bank Indonesia (BI) cut its policy rate by 50bp
in Q1 2020. Given the large downside risks to growth,
BI has left the door open for further rate cuts and we
expect another 125bp in cuts. While the volatility of the
IDR is a constraining factor, we think BI will be remain
opportunistic in terms of the timing. BI continues to lean
in against excess IDR volatility by intervening in the
spot, forward and bond markets. It is also increasing
USD and IDR liquidity support by reducing the USD
reserve requirement ratio by 4%, increasing the
frequency of FX swaps auctions and extending SBN
repo tenor and frequency. We expect more of these
measures to be adopted along with rate cuts.
3
4
5
6
7
8
9
Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20
New policy rate (7-day repo) adopted
BI Rate
7 Day Reverse Repo Rate
Deposit Facility Rate
Lending Facility Rate
%
Source: CEIC; Mizuho Bank
External Position: The current account deficit for 2019
narrowed marginally to 2.7% of GDP from 2.9% in
2018. For 2020, we expect the CAD to widen again as
collapsing commodity prices, weaker external demand
and significantly slower tourist arrivals weigh on export
growth. There will be some offset from weak import
growth given anemic domestic demand and falling oil
prices. The financing of the CAD will remain under
stress as volatile portfolio inflows (which to a large
extent finance the CAD) are reversing and the more
stable FDI inflows are unlikely to be supportive during
this time of heightened global volatility.
-12
-10
-8
-6
-4
-2
0
2
4
6
8
Mar-10 Jun-12 Sep-14 Dec-16 Mar-19
Net FDI
Current account balance
Basic balance
USDbn
Source: CEIC; Mizuho Bank
FX: As a twin deficit country (i.e. running both current
account and fiscal deficits) where foreigners hold a large
share of government debt, Indonesia is exposed to
significant capital outflows during times of risk-off. The
USD/IDR rate was pushed to beyond 16,600, surpassing
the previous highs of the Asian Financial Crisis.
Although the USD/IDR rate has come down since then,
the pressure on IDR will likely persist. That said, with
the US Federal Reserve opening the taps to unlimited
QE and BI supporting the currency during times of
excessive deprecation, there may be a ceiling on the
USD/IDR rate.
13000
13500
14000
14500
15000
15500
16000
16500
17000-1000
-800
-600
-400
-200
0
200
400
600
800
Dec-19 Jan-20 Feb-20 Mar-20
Change in bond holding by foreigners
Change in equity holdings by foreigners
USD/IDR (inverted, RHS)
USDmn USD/IDR
Source: Bloomberg; Mizuho Bank
Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021
GDP (% y/y) 3.9% 1.0% 1.5% 1.6% 3.3% 4.9%
CPI (% y/y) 2.9% 3.0% 2.8% 2.8% 2.9% 3.0%
Policy Rate (%) 4.50% 3.75% 3.25% 3.25% 3.25% 3.25%
USD/IDR*
16,310 16,250 16,100 16,200 16,100 16000
13,583 – 16,575
15,600 – 16,800
15,660 – 16,530
15,470 – 16,550
15,350 – 16,560
15340-16420
Note: Values in black are historical whereas those in blue represent forecasts. * Point forecast is for end-period. Q1 2020 ranges are from Bloomberg and only indicative.
.
Asia Quarterly – Q1/Q2 2020
- 20 -
Thailand: Hard-hit tourism drags growth into contraction
Growth: Q4 growth slowed to the weakest level in two
years as government spending contracted YoY due to
delayed approval of FY2020 Budget on top of lackluster
trade activities. Private consumption also started to wane
amidst slowing employment and income growth. Private
investment remained soft as delays in some
infrastructure projects have dragged on construction-
related investment whilst capex showed little sign of
pick up either. Going forward, growth may stall in 1H
against the backdrop of Covid-19 outbreak as tourism
sector faces unprecedented pressure with plunging
arrivals and partial lockdown will weight on
consumption. -4
-3
-2
-1
0
1
2
3
4
5
6
2014 2015 2016 2017 2018 2019
Contribution to growth (%YoY, -ppts)
Domestic demand
Net exports and chg of stocks
Sources: CEIC,Mizuho Bank
Industry: The nascent recovery in trade activities are set
to be tested by disruption caused by Covid-19 outbreak.
Though its key exports products, including electronics,
agro and petroleum have not faltered, impact of supply
chain disruption from China is likely to materialize in
Q2 when the inventory of intermediate goods might start
to run low. Automobile sector may still mired in
doldrums amidst down cycle of auto industry globally
and plunging sales in China will further add to the woe.
Machinery and equipment production may face
headwinds too if manufacturing sector as a whole stays
lackluster.
(60)
(40)
(20)
-
20
40
60
80
100
120
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
2015 2016 2017 2018 2019 2020
Foreign trade (YoY, %, 3mma)
Trade Balance (RHS, THB bn)
Exports
Imports
Source: CEIC, Mizuho Bank
Growth dynamics: Like other regional economies,
Thailand has introduced a series of stimulus measures
including cash handouts, soft loans for tourism-related
businesses and funds to purchase high-quality corporate
bonds. However, the effectiveness of these stimuli
remains to be seen as consumers are unlikely to spend
amidst plunging confidence and broad lockdown.
Policies to stabilize financial markets, including BoT
purchasing government bonds and tax measures to boost
stock market have less impact on the real economy,
especially to those vulnerable lower-income groups
which are arguably disproportionately affected by the
lockdown measures.
-10
-5
0
5
10
15
20
25
30
-10%
-5%
0%
5%
10%
15%
2015 2016 2017 2018 2019 2020
Government Finance (YoY, 12mma)
Budget balance (RHS)
Expenditure (RHS)
Revenue
Sources: CEIC, Mizuho Bank
Inflation: Headline inflation stuck at around 0.5% as
inflationary pressure is practically muted in non-food
segment. More than 70% of items in the CPI basket
posted inflation less than 1% suggests that core inflation
can hardly go beyond 1%. Fuel price will probably stay
at a low level too given plunging crude prices on top of
fuel tariff freeze until Apr. As consumer service
activities grind to a halt, underlying inflationary is likely
to be minimal as inflation expectation also stuck at a
record low level.
-2.5%
-1.5%
-0.5%
0.5%
1.5%
2.5%
3.5%
-2.0
-1.0
0.0
1.0
2.0
3.0
2014 2015 2016 2017 2018 2019 2020
Contribution to inflation (YoY, %-ppts)
Food Housing
Transport & comms Others
Inflation (RHS) Core inflation
Sources: CEIC, Mizuho Bank
Asia Quarterly – Q1/Q2 2020
- 21 -
Policy: BoT cut its policy rate by 25bps further to 0.75%
in an emergency meeting just a few days ahead of its
regular meeting. With BoT forecasting both growth and
inflation to go negative this year, further monetary
easing should not come as a surprise especially when
two out of seven MPC members voted for a further
25bps cut just five days after the emergency rate cut.
Fiscal stimulus in terms of cash handouts may be less
effective in a time when the country goes into a broad
lockdown with restrictions on social gatherings and
domestic travels. Given the heavy reliance on tourism
sector, increasing widespread of Covid-19 globally are
likely to drag down growth substantially with industry
body forecasts tourist arrivals to fall by one-third this
year.
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
2015 2016 2017 2018 2019 2020
Inflation vs Policy rate (%)
Real interest rate (RHS) Inflation, 3mma
Core inflation, 3mma Policy rate
Source: CEIC, Mizuho Bank
External Position: C/A surplus remained relatively
sizeable at close to 7% of GDP. Nonetheless, this is
likely to narrow going forward given that net travel
exports are expected to shrink with falling tourist
arrivals. Goods surplus may sustain at around its current
level as lackluster exports can be partly offset by lower
fuel and intermediate goods imports. Capital goods
imports may stay somewhat lackluster too if
infrastructure projects fail to start on time as plan.
Portfolio investment inflows have come under stress
lately as Thailand’s growth prospect has worsened
considerably given its large reliance on tourism receipts.
-15%
-10%
-5%
0%
5%
10%
15%
20%
2014 2015 2016 2017 2018 2019
Current account (% of GDP, 4QMA)
Income and transfer Other services
Goods Travel services
CA
Sources: CEIC, Mizuho Bank
FX: THB has weakened substantially by more than 8%
YTD as Thailand’s heavy exposure on tourism industry
put it in a poor position under the current Covid-19
situation. Nonetheless, on a trade-weighted basis, THB
is still in s multi-year high as other AxJ also softened.
Going forward, we expect THB to weaken further as
growth is set to contract in 1H and inflation is also likely
to slip into negative territory. What’s more, its sizeable
current account surplus, which arguably contributed to
its strong performance in recent years, is likely to shrink
given plunging tourism services exports.
25
27
29
31
33
35
3795
100
105
110
115
120
125
2014 2015 2016 2017 2018 2019 2020
Exchange Rate
NEER
USD/THB (RHS, inv. scale)
Sources: CEIC, Mizuho Bank
Appreciation
Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021
GDP (% y/y) -2.7% -4.0% 0.3% 1.3% 3.3% 4.2%
CPI (% y/y) 0.4% -0.6% 0.1% 0.5% 0.9% 1.6%
Policy Rate (%) 0.75% 0.50% 0.50% 0.50% 0.50% 0.50%
USD/THB* 32.7 32.1 31.5 31.7 31.4 31.0
29.8 - 33.0 30.9 - 32.6 30.6 - 31.9 30.6 - 32.0 30.3 - 31.9 30.3 – 31.4
Note: Values in black are historical whereas those in blue represent forecasts. * Point forecast is for end-period. Q1 2020 ranges are from Bloomberg and only indicative.
Asia Quarterly – Q1/Q2 2020
- 22 -
Philippines: Lockdown to knock down growth
Growth: : Although Q4 GDP growth picked up to 6.4%
YoY from 6.0% in Q3 on account of increased
government and investment spending, the outlook for
2020 is mired in uncertainty given the COVID-19
outbreak. As a domestic demand driven economy, GDP
growth in the Philippines initially seemed insulated from
the China-centric COVID-19 outbreak. However, as the
disease spread into a global pandemic, the Philippines
was no longer immune. The growth outlook deteriorated
significantly on account of the lockdown of Luzon island
(along with the capital city of Manila), and a fall in
tourist arrivals and dwindling remittance inflows.
-10
-5
0
5
10
15
20
Mar-11 Jun-12 Sep-13 Dec-14 Mar-16 Jun-17 Sep-18 Dec-19
Domestic final demand
Net exports
Change in inventories
Statistical discrepancy
Real GDP growth, % YoY
pp
Source: CEIC; Mizuho Bank
Industry: Although industrial production (volume)
growth picked to 1.5% YoY in Jan/Feb 2020 from -6.5%
in Q4 2019 and export growth picked up to 9.7% YoY in
January from 6.1% in Q4, we expect the improvement
will not sustain. Given the COVID-19 pandemic and the
state of lockdown/quarantine in the Philippines’ biggest
Luzon island (~70% of GDP) until end-April, activity
has ground to a halt. Furthermore, as the main items of
export are electronics products, the disruption to global
supply chains will hurt exports.
-20
-15
-10
-5
0
5
10
15
20
25
Jan-15 Apr-16 Jul-17 Oct-18 Jan-20
Industrial production (volume)%YoY
Source: CEIC; Mizuho Bank Growth dynamics: The growth outlook for 2020
depends on the intensity and extent of the COVID-19
outbreak. In our base case, the pandemic peaks in Q2
and we expect 2020 GDP growth to slow to 2.5% versus
6.7% before the pandemic. Domestic consumption will
be squeezed; the travel bans and suspensions will hurt
tourism (a big contributor to growth) and infrastructure
activities stop. The government said it has rolled out
support worth PHP1.1trn (~5.2% of GDP) to deal with
the pandemic including cash transfers to vulnerable
sections of society and higher allocations to healthcare.
0
5
10
15
20
25
Thaila
nd
Philip
pin
es
Mala
ysia
Sin
gapore
Vie
tnam
Indonesia
%GDP
Source: World Travel and Tourism Council; Mizuho Bank
Total contribution of travel and tourism to GDP
Inflation: Headline inflation eased to 2.5% YoY in
March from 2.6% in February as higher food prices were
offset falling transportation costs. Given the significant
drop in global oil prices and the near-complete pass-
through of global oil prices onto retail fuel prices,
inflationary pressures will remain low. Furthermore,
domestic demand pressures will ease as growth slows.
These will offset potential upside pressures from higher
food prices. For 2020, we expect headline inflation of
2.6% YoY within BSP’s 2-4% inflation target. -1
0
1
2
3
4
5
6
7
8
Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20
Restaurants & Miscellaneous EducationTransport HealthUtilities Alcohol & tobaccoFood Consumer Price Index, % YoY
pp
Source: CEIC; Mizuho Bank
Asia Quarterly – Q1/Q2 2020
- 23 -
Policy: BSP cut by a cumulative 75bp in Q1 2020 in
order to cushion against the downside risks to growth.
As liquidity constraints remain paramount, BSP cut its
reserve requirement ratio for universal and commercial
banks by 2% to 12% and also stated that it will purchase
government debt to the extent of PHP300bn. It will also
transfer PHP20bn in front-loaded dividend payments to
the government. BSP has made amply clear that it is
ready to use additional monetary policy space to support
growth which apart from further rate cuts includes
“recalibrating the interest rate corridor settings; reducing
the reserve requirement ratios; suspending the term
deposit facility (TDF) auctions; and ensuring access to
liquidity-enhancing facilities such as the rediscounting
windows.”
2.5
3.0
3.5
4.0
4.5
5.0
5
7
9
11
13
15
17
19
21
23
Mar-12 Mar-14 Mar-16 Mar-18 Mar-20
Reserve Requirement RatioReverse Repurchase Rate
% %
Source: CEIC; Mizuho Bank
External Position: The current account deficit narrowed
to 1.0% of GDP in 2019 from 2.6% on 2018. For 2020,
we expect the current account to shift to a small surplus
as falling oil import costs and anemic domestic demand
pressures cap import growth and more than offset the
weakness in goods export and remittances growth. On
the capital account side, volatile global risk sentiment
will hurt portfolio and FDI inflows. We do not expect
any financing concerns around the balance of payments
given expectations of a current account surplus and
adequate FX reserves.
-20
-15
-10
-5
0
5
10
15
20
Mar-16 Dec-16 Sep-17 Jun-18 Mar-19 Dec-19
Secondary Income balancePrimary Income balanceServices balanceGoods trade balanceCurrent account balance
%GDP
Source: CEIC; Mizuho Bank
FX: The PHP was fairly resilient compared to regional
peers even after the intensity of the COVID-19 outbreak
built. However, the closing and re-opening of onshore
financial markets during the week of 16 March triggered
capital outflows leading to some weakness in the PHP.
The US Fed’s bazooka of unconditional balance sheet
expansion could provide a ceiling to the USD/PHP rate.
Nonetheless, BSP has stated that it remains vigilant and
ready to provide adequate liquidity to alleviate
significant depreciation pressures.
47
48
49
50
51
52
53
54
55-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
Jan-17 Aug-17 Mar-18 Oct-18 May-19 Dec-19
USDbn Foreign Direct Investment
Foreign Portfolio Inv (net)
USD/PHP (RHS, inverted)
USD/PHP
Source:CEIC; Mizuho Bank
Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021
GDP (% y/y) 3.8% 0.7% 1.5% 4.1% 5.6% 6.9%
CPI (% y/y) 2.7% 2.1% 2.3% 2.6% 2.8% 2.9%
Policy Rate (%) 3.25% 2.50% 2.50% 2.50% 2.50% 2.50%
USD/PHP* 50.7 50.5 50.2 51.0 50.7 50.5
50.5-51.5 48.6-52.6 48.9-51.9 48.8-52.4 48.5 – 52.5 48.5-52.2
Note: Values in black are historical whereas those in blue represent forecasts. * Point forecast is for end-period. Q1 2020 ranges are from Bloomberg and only indicative.
Asia Quarterly – Q1/Q2 2020
- 24 -
Vietnam: Growth may slow to sub-5% Growth: Q4 GDP plunged to 3.8% as a broad-based
slowdown was seen in various sectors, especially among
services. Disruption in trade activities has clearly
dampened manufacturing production as industries with
heavy reliance on raw materials imports from China face
risk of inventory running low. Services sector were hit
hard too with plunging tourist arrivals weighing on retail,
food, accommodation and transport industries. With
employment growth contracting for the first time in three
years on top of more restrictive lockdown measures,
domestic demand is set to stay tepid. Growth this year is
set to fall to sub-5% as external environment is
deteriorating on top of softening domestic demand.
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
2015 2016 2017 2018 2019 2020
Contribution to GDP (%YoY, -ppts)
Services Construction Industry Agri
Sources: CEIC, Mizuho Bank
Industry: Manufacturing activities are likely to face
more headwinds in near future. To begin with, as the
COVID-19 spread in Europe and the US intensifies,
demand for Vietnam’s key export products such as
textiles and garment are likely to plunge further.
Secondly, as the country steps up lockdown measures,
factory operations are likely to be affected as some
Japanese auto assembly plants were reported to shut
down for two weeks. More stringent lockdown measures
could also bring logistical issues as manufacturers are
unable to get raw material or immediate goods on time as
demanded.
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
2016 2017 2018 2019 2020
IP, volume (%YoY, 3mma)
Coal Garments Mobile phone
Sources: CEIC, Mizuho Bank
Growth dynamics: Vietnam continues to be one of the
most favorable destinations of direct investment as a
series of events from US-China trade war to coronavirus
have forced firms to re-think about the resilience of
supply chains and the benefits of diversification. The
broader trend of re-wiring of manufacturing supply
chains in the region are likely to continue and Vietnam is
expected to capture more labour-intensive manufacturing
businesses. On the other hand, its shortcoming, including
shortage of skilled labour and energy security, would
also become increasingly acute as its manufacturing
ecosystem becomes more sophisticated. 0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2015 2016 2017 2018 2019 2020
Registered FDI (USD bn, 12mma)
Others
Utilities
Wholesale, retail trade
Real estate
Mfg
Total
Sources: CEIC, Mizuho Bank
Inflation: Inflation surged to above 5% largely led by
higher food prices whilst higher housing prices also
contributed positively. As food prices at producer level
also rose at the fastest pace in more than seven years,
headline inflation may stay elevated as lockdown
measures could affect logistics issues. Government has
introduced steps to ensure food sufficiency and security
via limiting rice exports. On the other hand, weaker
economic growth can help to alleviate some inflationary
pressure from demand side.
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
2016 2017 2018 2019 2020
Contribution to inflation (%YoY, -ppts, 3mma)
Others Transport
Healthcare Education
Housing Food
CPI, YoY Core CPI, YoY
Sources: CEIC, Mizuho Bank
Asia Quarterly – Q1/Q2 2020
- 25 -
Policy: SBV has cut its policy rate by 1% joining an
increasing number of global and regional central banks
in an easing effort to cushion the economy. In addition, it
has also instructed commercial banks to provide cheap
loans and to cut or delay interest payments from
businesses affected by the coronavirus. Further rate cut
can’t be ruled out if damage in growth comes larger than
expected especially given limited fiscal space for
stimulus. Elevated inflation may limit the extent of
reduction as the government tries to tame inflation by
freezing power price at retail level and restricting rice
exports.
-1.0
1.0
3.0
5.0
7.0
2015 2016 2017 2018 2019 2020
Policy rate v.s. Inflation (%)
Real interest rate Refinancing Rate
CPI Core CPI
Sources: CEIC, Mizuho Bank
External Position: Current account surplus might
moderate going forward as goods account surplus are
expected to narrow on the back of slower global growth.
Services account surplus are likely to widen further on
plunging tourism revenue as arrivals plunged 18% YTD
in Q1 with no quick turnaround in sight. Remittances
from overseas may also moderate and further squeeze
C/A surplus. On a positive note, FDI inflows remain
fairly resilient supported by investments from China and
ASEAN. FX reserves continue to grow given relatively
stable C/A as its import cover hits around 3.5 months,
the highest level in almost a decade.
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
2015 2016 2017 2018 2019
Balance of Payment (USD bn, 4QMA)
Net errors Other investmt
Portfolio investmt FDI
CA Overall BoP
Sources: CEIC, Mizuho Bank
FX: VND has come under pressure lately with the gap
between indicative prices from commercial bank and
SBV official rate widening to as much as 2%. Slowing
global growth are likely weigh heavily on Vietnam’s
growth given that its key exports products such as textile
and mobile phone are likely to face sharp fall in demand
from advanced economies. Domestic demand are
weakening too amidst lockdown measures and slowing
employment growth. Whilst SBV has cut policy rate by
1%, room for further reduction may be limited by
elevated inflation. We expect the central bank to
gradually guide VND lower towards high-23,000 given
mounting downside pressure.
22,000
22,200
22,400
22,600
22,800
23,000
23,200
23,400
23,600
23,800
2017 2018 2019 2020
USD/VND exchange rate
Official rate (SBV)
Commercial bank rate
Sources: Bloomberg, Mizuho Bank
Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021
GDP (% y/y) 3.8% 3.0% 4.4% 5.5% 7.1% 7.0%
CPI (% y/y) 5.6% 5.0% 4.7% 3.5% 2.8% 3.2%
Policy Rate (%) 5.00% 4.50% 4.50% 4.50% 4.50% 4.50%
USD/VND*
23,616 23,360 23,200 23,300 23,200 23,160
23,163 - 23,650
23,100 - 23,800
23,000 - 23,600
23,000 - 23,600
22,900- 23,600
23,000 – 23,500
Note: Values in black are historical whereas those in blue represent forecasts. * Point forecast is for end-period. Q1 2020 ranges are from Bloomberg and only indicative.
Asia Quarterly – Q1/Q2 2020
- 26 -
Australia: Compromised Growth: The hat trick of US-China conflict, bush-
fires and now the COVID pandemic have
compromised Australia’s economy – the “lucky
economy” no more. A recession will be hard to deflect;
with sub-1% annual growth on the cards. Not only is
revenue shock inflicted by the “corona crisis” a
significant downside risk on its own accord, but
decades of build-up in household debt accentuates
vulnerabilities. What’s more, subdued commodity
demand from a slowing China dents terms of trade and
capex. The collision of these risks compromises
outcomes and policy. (6)
(4)
(2)
0
2
4
6
8
(6)
(4)
(2)
0
2
4
6
8
06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Net exports reveal volumes more than offsett plunging prices! But
private consumption & investments remain troubled!(GDP Contribution- %-pts)
Inventory & Errors Net Exports GFCF Public
GFCF Pte Non-Dwelling GFCF - Pte Dwellings Govt
Consumption GDP Sources: CEIC, Mizuho Bank
Industry: One of the signs of a lackluster industry has
been the weak wage growth, in sharp contrast to the
boom years. This has also compromised hiring
dynamics – be it in the form of underemployment or a
fairly high proportion of casual/part-time workforce. But
this is not just a barometer but a potential spark point if
weak wages, which further strain household finances,
collide with a housing market bust. In turn, this could
have a quick feedback into the construction and
commodity industry; and perhaps even via banking
channels; threatening to create a negative B/S shock
contagion across the economy.
0
1
2
3
4
5
6
7
0
1
2
3
4
5
6
7
05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Australia: Weak (albeit bottomed) wage growth in the context of heavier household debt
burden justifies the RBA's Dovbish Turn. (% YoY)
Wage Index Mfg Public Sector
Private sector Mining Inflation
(4)
(2)
0
2
4
6
8
10
(4)
(2)
0
2
4
6
8
10 Australia's Housing Market: Signs of Bottoming Provide Much Needed Relief for "Over-leveraged Households. Assuages, but does not Arrest B/S risks via negative wealth/banking channels.
(% Chg QoQ)
Sydney Melbourne Weighted Average
Growth dynamics: And this is precise why one of the
biggest bugbears for the RBA has been elevated
household debt. Being intricately and inextricably
inter-woven with the property market, which has been in
earlier years running hot, this had amplified the
coincident debt (mostly mortgage) and collateral bloat on
households and banks’ B/S. And so, fragilities may be
contiguous, requiring more delicate handling. In that
context housing market bottoming after several
quarters of downturn is certainly welcome relief. But it
does not distract from compromised household finances
and shakier bank balance sheets susceptible to demand
shocks.
100
120
140
160
180
200
40
60
80
100
120
140
160
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Household B/S risks are compounded by housing soft spots and weak wage gains; amplifying banking-H/H negative feeedback loops. (%)
Housing Debt to Disposable Income
Owner Occupied Housng Debt to Disposable Income
Debt to Disposable Income (RHS)
Inflation: Renewed dis-inflation in fuel and utilities, led
by oil’s collapse, will more than offset the cost-push pick-
up in food inflation expected amid backed up global
logistics/supply-chains, exacerbated by strategic stock-
piling by major economies. What’s more the weakening in
job market dynamics will likely setback wage pick-up
further. In which case, there is a real risk of wage-price
dynamics being knocked back into negative feedback; at
least during the depths of the economic seizure (which is
accentuated by social distancing measures). Hence
underlying deflationary risks will be the key concern;
particularly assessing whether this turns out to be sticky
or passes with the peaking of COVID-19. For now, sub-
1% to 1.5% inflation trend is par for the course. (2)
(1)
0
1
2
3
4
5
6
(2)
(1)
0
1
2
3
4
5
6
05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Australia CPI: Gradual inflation recovery into end-2019 upended by the crash in Oil alongside demand collapse; RBA to hold rates at record low 0.25%.
Automotive Fuel H/H Energy Total Housing ex-energy
Tpt-ex Fuel Services Alcohol & Tobacco
Food Inflation ex-Fuel & Energy CPI
Asia Quarterly – Q1/Q2 2020
- 27 -
Policy: With the cash rate slashed by 50bps in March to
record low 0.25%, essentially exhausting rate cut options
– the RBA expressing misgivings about ZIRP due to
“liquidity trap” and outright aversion to negative rates (on
detrimental banking side-effects) – has YCC (with 3Y
AGB target at 0.25%) has displaced rates as the core key
policy tool. This is essentially QE with a price (yield)
target and some transmission benefits as the RBA is not
constrained in the quantum or tenor of assets purchases.
Complementing YCC, is the funding for lending program
which may be scaled up as necessary. With a deep
downturn expected, YCC will probably remain intact into
mid-2021 at least. And that ascertains cash rate at 0.25%
for a prolonged period given rate normalization is
sequenced after YCC wind down.
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
15 16 17 18 19 20
RBA: After 75bps of cuts in 2019, RBA slashed another 50bps in 2020 to lower the Cash Rate to 0.25%. Now QE & LTRO-type programs are the focus. Speed of Fed's has more "shock and awe" factor. (Policy
rate; %)
RBA-Fed Spread Fed (US)
RBA RBA Real Rate
Sources: Bloomberg, Mizuho Bank
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10Y
RBA's YCC aimed at 3Y appears to be paying off with long-end (10Y) yields now being reined in. (AGB Yield Curve, %)
Start of 2020 Pre-RBA YCC (18th March)
Post-YCC (19th March) Latest (8th Apr)
3rd March (Scheduled):- Cut Cash Rate by 25bp to 0.50%.
19th March Emergency Meeting: - Cut 25bp to 0.25% - Initiates YCC (targetting 3Y AGBs) too.
YCC Impact:Initial confusion caused a fleeting surge in 10Y yields in what appeared to be an arbitrage (substitution) trade -buying 3Y and selling 10Y.But the RBA clarifying that bond buying has no limits on quantity or tenor has reined in long-end yields alongside anchoring 3Y ~0.25% target.
Sources: Bloomberg, Mizuho Bank
External Position: Australia could continue to hold on to
the C/A surplus attained in recent times, despite early-
2020 dent from; i) travel restrictions (impacting inbound
flows from tourist/education channels) as well as; ii)
negative commodity shock (to both price and quantity
demanded). One reason for a bounce back in the C/A
position later part of the year is tied to pent up demand
from China, which resumes activity (albeit cautiously),
and infrastructure plans. But the recovery in the C/A may
be bumpy and dictated by the proliferation and peaking
of the coronavirus pandemic; And overall external
balance may be softened by global market volatility.
(25)
(20)
(15)
(10)
(5)
0
5
10
(25)
(20)
(15)
(10)
(5)
0
5
10
15
20
06 07 08 09 10 11 12 13 14 15 16 17 18 19
Softer AUD has gently reined in C/A deficit suggesting some J-curve benefits but distorted by iron ore price surge (Tot effects!). Buoyant commodity prices help lift merchandise trade surplus.
(A$bn; 4Qma)
Secondary Income Primary Income Services Goods C/A BOP
Sources: CEIC, Mizuho Bank FX: The Antipodean hit record post Dot-Com lows of 55
cents in late-Q1 before quickly regaining traction. Risks
from the commodity/terms of trade channels along
with monetary activism (led by YCC) suggest that AUD
downside risks cannot be dismissed lightly despite the
apparent turnaround following coordinated monetary-
fiscal stimulus. For now, what is key is that tentative
AUD traction is premised on USD calibrating lower on
Fed’s “QE Infinity” and positive turn in risk
appetite/China. But should COVID-related recession
risks resurface AUD could easily buckle to 0.54-0.53. A
more gradual recovery to 0.63-0.65 into mid-2020 looks
likely, coinciding with China’s recovery.
(8)
(5)
(2)
1
4
7
10
13
16
19
22
(6)
(3)
0
3
6
9
12
15
18
21
24
Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19
AUD & Gold have shared some common drivers - from commodities to Anti-USD to debasement hedge - but not "safe haven" characteristics! Expect AUD to
remain highly volatile, accentuated by YCC.(% Chg Cumulative; from end-2018)
AUD GoldSources: Bloomberg, Mizuho Bank
Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021
GDP (% y/y) 0.9% -1.2% 1.4% 1.8% 2.4% 3.2%
CPI (% y/y) 0.6% 0.4% 1.0% 1.2% 1.6% 1.8%
Policy Rate (%) 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
AUD/USD*
0.614 0.630 0.665 0.640 0.668 0.685
0.551 - 0.703 0.599 - 0.660 0.603 - 0.690 0.607 - 0.666 0.635 – 0.695
0.662 – 0.711
Note: Values in black are historical whereas those in blue represent forecasts. * Point forecast is for end-period. Q1 2020 ranges are from Bloomberg and only indicative.
Asia Quarterly – Q1/Q2 2020
- 28 -
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